SEC says part of the Ripple ruling was ‘wrongly decided,’ hints at filing appeal
The U.S. Securities and Exchange Commission (SEC) has reportedly said that parts of the Ripple ruling were “wrongly decided.” document The referenced portion of the ruling (the part against the SEC) states that the sale of XRP on exchanges does not constitute the sale of securities.
The SEC’s comments were part of a lawsuit complaint against Terraform Labs and its founder Do Kwon. The SEC responded to defendants’ motions to dismiss, citing the Ripple ruling earlier this month.
The SEC’s comments come less than a week after SEC Chairman Gary Gensler said he was “disappointed” by Ripple’s ruling on retail sales.
SEC Says Ripple Ruling Contradicts Howie Test
While the Ripple ruling is widely regarded as a victory for the US cryptocurrency industry, it was largely a victory for the SEC, not Ripple. “Many of the Ripple decisions support the SEC’s arguments,” the SEC said.
Furthermore, the court ruling on the sale of XRP to retail investors is “contradictory and additive.”
Unsubstantiated claims against Howey and his descendants,” the SEC wrote, adding:
“…Ripple Analysis on Programmatic Sales” [retail sales] Howie and decades of federal securities law precedent cannot be challenged. “
The Ripple ruling ruled that the sale of XRP to institutional investors is considered a sale of securities. According to the SEC, the court should have come to a similar conclusion regarding the retail sale of XRP.
However, the SEC argued that the Ripple ruling created an “artificial distinction” between “sophisticated” institutional investors and individual investors. It added that the ruling “transforms Mr. Howie’s rational investor inquiry into something unfairly subjective and undermines the underlying logic of Mr. Howie’s and others’ litigation.”
In other words, the Ripple ruling created two different standards of what constitutes a “reasonable investor” for institutional investors and individual investors. The SEC noted that “it goes against Howie to create such a subjective dichotomy.”
The market watchdog concluded that:
“Finally, the underlying logic of the Ripple ruling diverges from the underlying principles behind Howie and from broader federal securities law.”
The SEC explained that, as it did in the Ripple case, federal securities laws provide more, not less, protections for retail investors when distinguishing between institutional and retail investors. Accordingly, the SEC noted that the ruling was “impossible to reconcile” with fundamental principles of securities law.
Citing all of these explanations, the SEC asked the court to ignore Ripple’s retail ruling in the lawsuit against Terra and Kwon.
SEC may appeal parts of Ripple ruling
The SEC said in its filing that its staff is considering all options for “further consideration” and that it “intends” to recommend an appeal to the SEC.
Ripple CEO Brad Garlinghouse said last week that it could take “years” for the SEC to appeal. Garlinghouse added that he was “very optimistic” that even if the SEC were to appeal, Ripple would win, solidifying its recent ruling.
