John Reed Stark, a regulatory compliance expert in the digital space with a 15-year tenure as an SEC enforcement attorney, took to social media platform X (formerly known as Twitter) on 6 October 2023 to share his insights on Judge Torres’ recent order concerning the SEC and XRP. Stark emphasized that the judge’s decision to deny the SEC an interlocutory appeal also stated that her previous summary judgement should not be considered as setting a legal precedent, unless the facts of a new case are identical.
Stark pointed out that although this might seem like a minor win for the XRP team, it could ultimately be a hollow victory. He believes that the SEC is likely to appeal the decision post-trial and stands a good chance of winning. Stark noted that Judge Torres has explicitly stated that her decision is not to be considered a precedent for other cases in the cryptocurrency sector.
Stark also commended John Deaton and the XRP team for challenging the SEC’s unilateral law-making practices. He expressed his frustration with attorneys who cycle between law firms and the SEC, suggesting that such lawyers are unlikely to challenge the status quo due to potential conflicts of interest. Stark praised Deaton’s team for highlighting the SEC’s underappreciated efforts in tackling less-publicized but crucial cases like microcap fraud and penny stock fraud.
However, Stark was unequivocal in stating that Judge Torres’ decision on Ripple should not be cited as a precedent on whether tokens are securities. He cited the judge’s explicit remarks that her findings were based on the unique facts and circumstances of the Ripple case.
In the order that denied the SEC’s request for interlocutory appeal, Judge Torres dismissed the SEC’s contention that the questions raised in the case are ‘crucial’ legal matters with far-reaching implications for numerous other cases. She clarified that her conclusions are based on applying the Howey test to the specific facts and circumstances unique to this case involving Ripple.
Judge Torres went on to say that the SEC’s references to other enforcement actions, which involve different digital assets and companies, are not directly comparable due to varying facts and economic conditions. She also corrected the SEC’s interpretation of her rulings, stating that her order should not be seen as setting a precedent for other digital asset cases. Specifically, the SEC had sought to question whether an issuer’s activities on cryptocurrency trading platforms could create a reasonable expectation of profits for investors. Judge Torres clarified that her ruling was not a blanket statement on this issue but was based on the complete set of facts and economic realities surrounding Ripple’s Programmatic Sales.
Stark warned that any lawyer who cites this decision as a general guideline on token regulation risks ethical repercussions for violating their duty of candor. This is because Judge Torres has clearly indicated that her decision has no precedential value, except in very specific circumstances where the facts are identical.
Stark concluded by cautioning that citing Judge Torres’ decision in a broader context would be an ethical violation, as the judge has clearly stated that her decision should not be considered as having universal applicability.
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