Ripple SEC Lawsuit Update: Top Reasons Why SEC’s Appeal Against XRP Might Fail

As ripples from the landmark decision in the Ripple-SEC case begin to quiet down, the world of cryptocurrency is buzzing again. This is because Gary Gensler’s SEC team is contemplating an appeal against the ruling which unequivocally declared XRP as non-security.

The Common Enterprise Conundrum

Influential cryptocurrency attorney, John Deaton, a vocal Ripple advocate, expressed his thoughts on this development via Twitter. Deaton unpacks the crux of the judgment in his tweet, which lies in ‘Footnote 13’, where the court determines the existence of a common enterprise solely between Ripple and its institutional buyers. 

It remains unclear whether this connection extends to other XRP holders, Ripple’s top executives, Brad Garlinghouse and Chris Larsen, the broader XRP ecosystem, or any other entities.

Deaton holds the view that the SEC will face a steep climb in proving a common enterprise connection between Ripple and secondary market XRP holders, even if they triumph in appealing Judge Torres’s ruling. He emphasizes that the SEC’s hypothesis in this case was convoluted and unconvincing, leading to their defeat.

The Howey Test Hurdle

The Securities and Exchange Commission contends that the Ripple ruling contradicts the core principles of securities laws, such as the Howey Test. This legal standard is instrumental in identifying whether an arrangement falls into the ‘investment contract’ category.

The Commission’s stance on the Ripple lawsuit came to light in a distinct case against Terraform Labs and Do Kwon, its founder, accused of spearheading a multi-billion-dollar cryptocurrency asset securities fraud.

Parallel Paths or Conflicting Crossroads

The SEC maintains that significant aspects of the Ripple ruling support their allegations in the Terraform Labs case, disputing arguments raised by the defense. They posit that the ruling in Ripple’s favor imposes unfounded requirements on the Howey Test, creating a conflict. They assert that such parts of the Ripple ruling are misguided and should not be followed by the court. 

It remains to be seen how this developing situation will impact the complex intersection of traditional securities law and the evolving landscape of cryptocurrency regulation.