The legal battle between the SEC and Ripple Labs has seen significant developments, with insights provided by Marisa Tashman Coppel, Senior Counsel at Blockchain Association, on X (formerly known as Twitter) on 22 August 2023.
Her tweets shed light on recent rulings by Judge Torres and Judge Rakoff of the U.S. District Court for the Southern District of New York and the need for a higher court to weigh in on the status of XRP.
- Judge Torres’s Ruling and SEC’s Appeal: Judge Torres granted the SEC’s request to file a motion for leave to file an interlocutory appeal. The SEC subsequently filed the motion, essentially asking permission to appeal Judge Torres’s 13 July 2023 decision. The SEC needs permission from both Judge Torres and the 2nd Circuit to appeal now rather than waiting until after the trial. Ripple will respond, and the judge will decide whether to certify the case for appeal and whether to delay the trial (against Ripple, Brad Garlinghouse, and Chris Larsen), which is currently scheduled to start sometime in Q2 2024.
- Judge Rakoff’s Ruling in SEC v. Terraform Labs Case: On 1 August 2023, Judge Rakoff published his ruling in SEC v. Terraform Labs, denying Terra’s motion to dismiss. Coppel reflects on how to reconcile these two opinions, noting that it’s easy to latch onto Rakoff’s statement rejecting Torres’s approach in Ripple but advises not taking it at face value.
- Differentiation Between Purchasers: Rakoff appears to reject the approach to distinguish between different purchasers, such as institutional vs. retail investors. However, he then looks for whether defendants marketed to both, finding that the SEC properly alleged they did. If Rakoff’s reasoning is correct, marketing to either retail or institutional would suffice.
- Comparison Between Rakoff and Torres’s Orders: Rakoff’s order decides a motion to dismiss, requiring the court to take allegations as true, with no discovery or external evidence. This is a significant difference from the Ripple case. However, like Torres, Rakoff analyzed if the marketing makes clear to both retail and institutional investors that the project benefits from purchases.
- Need for Higher Court Intervention: Rakoff was not as clear as Torres that tokens do not, in and of themselves, represent investment contracts. Coppel emphasizes that this is why a higher court needs to weigh in on the matter.