The U.S. Securities and Exchange Commission (SEC) has made quite an interesting pivot. On Friday, the financial watchdog requested for an allowance to appeal a federal judge’s verdict which stated that XRP sales through exchanges weren’t infringing the securities law. This surprising twist comes just a day after the judge gave a green light to the SEC’s argument presentation.
This move by the SEC invokes attention as the key point in contention is related to Ripple’s systematic sales of XRP. The matter of discussion pertains to whether such sales violated the securities law. This is because, according to the judge, retail investors making purchases via exchanges do not carry the same expectations as an institutional investor who is buying XRP directly from Ripple.
The argument that the SEC is itching to put forth is around the legalities of “investment contracts”. These contracts, formed with undisputed facts, revive a ticklish question – could an issuer’s offerings and deals on crypto asset trading platforms potentially create a reasonable expectation of profits depending on the efforts of others? This tricky question holds not only in this case scenario but is a major subject in several other pending lawsuits. A ruling from the Second Circuit will eventually set a precedent, the SEC noted in its filing.
The potential ripple effect of this ruling is significant. It has the capacity to influence other lawsuits of the SEC. To name a few, the Commission’s actions against entities like Coinbase and Dragonchain, including other legal matters such as bankruptcies could face the repercussions of this decision.
However, the SEC clarified that the focal point of its argument lies around the sales proceedings of XRP, sidelining the actual asset. According to the regulator, the underlying assets in the form of computer code with no inherent value are not necessarily a security, a point which the SEC believes does not require a review. The counter-response to the SEC’s motion by Ripple is expected by September 1, 2023, upon which the SEC will have another week for replying. If Judge Torres grants approval for the interlocutory appeal, the SEC will have to knock the doors of the Second Circuit Court of Appeals for further procedure.