Following the recent court verdict favouring XRP in the Ripple Labs lawsuit, the U.S. Securities and Exchange Commission (SEC) hints at a possible appeal.
The regulator believes this decision contradicts established securities laws principles. Besides, it challenges the time-honoured Howey Test used to classify investment contracts.
Do we really want a judge to ask herself: Does my strict application of the Howey test in this case result in an outcome in 2023 that comports with the policy implications behind a 1934 statute? https://t.co/acMNRc00B6
— John E Deaton (@JohnEDeaton1) July 22, 2023
The SEC’s hint of an appeal stems from court documents. These documents indicate the commission is currently “evaluating various avenues for further examination.” Consequently, the SEC may challenge the Ripple Labs lawsuit ruling.
However, this was not a standalone statement. The SEC voiced its concerns in response to a motion to dismiss Terraform Labs and its founder, Do Kwon. This case also deals with alleged multi-billion-dollar crypto asset securities fraud.
In their response, the SEC drew parallels between the Ripple and Terraform cases. However, they expressed concerns about perceived additions to the Howey Test in the Ripple ruling. These include references to Programmatic and other sales. Moreover, the SEC voiced its discontent with portions of the Ripple ruling stating;
“Respectfully, those portions of Ripple were wrongly decided, and this Court should not follow them. SEC staff is considering the various avenues for further review and intends to recommend that the SEC seek such review.”
Chairman Gensler’s Response
In light of the above, SEC Chair Gary Gensler voiced his dissatisfaction with the Court’s ruling on XRP. Gensler approved that a token for institutional investors is considered a security. Yet, he expressed disappointment with the retail investor aspect of the ruling, stating the SEC is still “taking a look at that and considering it.”
Gensler was also questioned on the urgent need for clear regulations for the industry during a talk on artificial intelligence at the National Press Club. However, he avoided providing a direct answer to such inquiries.
In response to the SEC’s stance, exlawyernft, a noted observer of the case, highlighted the SEC’s seemingly contradictory position. They posted a series of tweets highlighting the SEC’s dismissal of federal courts’ requirement for ‘horizontal or vertical commonality’ for an investment contract under the Howey test.
The SEC arguing that a court didn’t follow Howey is rich… On its own website, the SEC has acknowledged that Fed courts require commonality & then it goes on to say that it doesn’t require commonality in its analysis or view commonality as a distinct part of Howey. If the SEC’s… https://t.co/CX6Kwfh3cJ
— exlawyer.eth/tez (@exlawyernft) July 22, 2023
They also called out the SEC’s alleged disregard for federal law and courts and asked when Congress would hold the SEC and Gensler accountable for actions that might harm Americans.
The unfolding saga adds a new chapter to the ongoing discourse on the classification and regulation of digital assets, an area that continues to evolve as the sector matures. With regulatory bodies and companies like Ripple Labs engaged in these landmark cases, the outcome could set significant precedents for the future of the crypto industry.
As of 19:00 UTC on July 22, sellers had driven the XRP price down from a monthly peak of $0.8875 on July 13 to $0.7469, a 16% decline in a few days.
Despite a dip in market value due to the price fall, XRP remains a top 10 digital asset by market capitalization with approximately $39 billion. The coin continues to see a minimum daily trading volume of $1 billion over the past week, data from crypto price tracker CoinMarketCap showed.
This dip suggests that the XRP market is consolidating as traders profit from the recent price spike.
XRP/USD 24-hour price chart (source: CoinMarketCap)