The Landmark Ruling on 13 July 2023
On 13 July 2023, a significant ruling was delivered in the ongoing SEC vs Ripple Labs lawsuit. The U.S. Securities and Exchange Commission (SEC) had accused Ripple Labs and its two senior executives, Bradley Garlinghouse and Christian A. Larsen, of unlawfully offering and selling securities. The case was presided over by Hon. Analisa Torres, a district judge at the United States District Court for the Southern District of New York.
The court’s decision was a mixed bag, granting and denying summary judgment motions from the SEC and Ripple. The SEC’s motion for summary judgment concerning the Institutional Sales was given, but denied for other matters. Conversely, Ripple’s motion for summary judgment regarding the Programmatic Sales, the Other Distributions, and the sales made by Larsen and Garlinghouse was granted, but denied concerning the Institutional Sales. The SEC’s motion for summary judgment on the aiding and abetting claim against Larsen and Garlinghouse was also denied.
A key takeaway from the ruling was the judge’s statement that XRP, as a digital token, does not in and of itself embody the Howey requirements of an investment contract, suggesting that the court does not view XRP as a security.
The Potential for an Interlocutory Appeal by the SEC
Given the partial nature of the summary judgment, the SEC has the option to file an interlocutory appeal. An interlocutory appeal is an appeal of a ruling made before the trial has concluded. It allows an appellate court to review an aspect of the case before the trial concludes.
The timeline for filing an interlocutory appeal can vary, but generally, a party has a limited amount of time from when the order or judgment is entered to file a notice of appeal, often 30 days. As of 26 July 2023, if the typical 30-day rule applies, the SEC would still have time to file an interlocutory appeal given that Judge Torres made her ruling on 13 July 2023.
However, interlocutory appeals are not automatically accepted by appellate courts. They are generally only granted under certain circumstances, such as when the issue at hand significantly affects the outcome of the case, or when it presents a significant question of law that could impact other cases.
MetaLawMan Examines the SEC’s Four Options
In a recent series of tweets, the pseudonymous crypto lawyer known as ‘MetaLawMan’ shared his thoughts on the potential next steps for the SEC in the ongoing Ripple case. He outlined four possible options that the SEC might be considering.
The first option is to file a request for an interlocutory appeal. As no final judgment has been entered yet, the SEC doesn’t have the right to appeal at this stage without permission from both Judge Torres and the 2nd Circuit Court of Appeals. To get this permission, the SEC would need to demonstrate that the ruling involves a controlling question of law, there are substantial grounds for difference of opinion on that question, and an immediate appeal may materially advance the litigation. There is no specific deadline for this initial request, but it should be done promptly, ideally within 30 days. If Judge Torres agrees, the SEC would then have 10 days to ask the 2nd Circuit.
The second option is for the SEC to proceed with a trial on the aiding and abetting claim against Larsen and Garlinghouse, and then file a regular appeal. The third option is for the SEC to drop the claim against Larsen and Garlinghouse now and take an immediate appeal, without needing any permission. The fourth and final option is to settle the case.
MetaLawMan believes that the SEC is likely to try the first option of interlocutory appeal due to the significant political pressure on SEC Chair Gary Gensler to get the Torres decision reversed as soon as possible. The decision is also affecting the SEC’s cases against other major crypto exchanges like Coinbase, Binance, and Bittrex.
The political implications of the case are also significant. Crypto exchanges worldwide are re-listing XRP, which is making the SEC look bad. Progressive Congressman Ritchie Torres and others have been emboldened to increase their criticism of Gensler. This situation is proving to be embarrassing for Gensler and his allies.
MetaLawMan thinks that a settlement is unlikely at this point. It’s hard to imagine the SEC settling with Ripple and leaving the Torres precedent untested on appeal. The SEC’s entire “regulation-by-enforcement” program against the crypto industry hinges on getting the Torres decision reversed.
In conclusion, MetaLawMan expects the SEC to file a request for interlocutory appeal within the next two weeks. He believes it would be in the best interests of Ripple and the XRP community for the appeals process to start now, rather than a year from now. He also expressed confidence in Ripple’s chances on appeal.