David Schwartz, the chief technology officer of Ripple Labs, creators of the Ripple blockchain and its native XRP token, went on X (formerly Twitter) last week to explain how the U.S. Securities and Exchange Commission (SEC) was able to file an appeal to the judge’s landmark ruling in the SEC vs Ripple legal battle.
Federal Judge Rules That XRP is Not a Security When Sold Indirectly
On July 13, Federal judge Analisa Torres ruled that XRP was not a security when sold via secondary sources like cryptocurrency exchanges. But, Torres noted that the token will be considered unregistered security if sold directly by the company to investors like venture capital firms.
The judge’s decision was considered a huge win in the crypto world that dented the hopes of the federal agency to bring the industry directly under its watch. The SEC is in the midst of conducting a broader crackdown on the crypto sector following the collapse of the FTX exchange in November 2022.
At the time, the securities regulator argued that it would file an appeal against the court’s verdict. On Thursday, the judge allowed the financial watchdog to file a motion to appeal her decision.
Schwartz, who was replying to a question by another X user to a defense lawyer and former federal prosecutor James K. Filan, explained that any party that loses on an issue in their lawsuit was “entitled to appeal any adverse rulings at the conclusion of the suit”.
SEC to Appeal Court Decision in an Attempt to Delay the Final Verdict
He detailed that the SEC choose to appeal the case at this specific point because it is aware the suit is not over yet for both the involved parties. Typically, there are “lots of little rulings” throughout a court case, and each appeal of the ruling by the losing side would result in the original case being paused for a while, wrote the Ripple CTO.
Every time a party appealed to the verdict, the court will be forced to put away the case for at least a year. During an ongoing lawsuit, there will be lots of overlapping appeals that both sides will have to deal with, making the final decision take forever to be made.
According to Schwartz’s tweet, “normal rule” encourages both parties to appeal all adverse rulings once the original case has concluded. It is done so that all appeals can be handled by the court at the same time and without any delay.
But the court offers an exception for “unusual cases”, which the SEC is using as precedent to demand that all regular proceedings of its case against Ripple should be paused until the appeal is complete.
Meanwhile, Ripple demands that no exception should be given, and even if the federal regulator is granted the right to appeal by the court, the case should still continue and the appeal would “run in parallel”.
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Ripple Sued by the SEC in 2020 for Selling “Unregistered Securities”
The SEC sued Ripple in December 2020, accusing the core developer of the Ripple blockchain of selling XRP tokens as unregistered securities. The agency saw digital currency as investments similar to shares in a public company.
But Ripple argued that XRP was a commodity and should be regulated as such. The company defended its argument using a statement made by Willian Hinman, the SEC’s director for the Division of Corporation Finance.
Speaking at an event in 2018, Hinman said he believed that both Ethereum and Bitcoin should be classified as commodities because every cryptocurrency was “sufficiently decentralized” and lacked a central entity whose actions are necessary for “determining factor in the enterprise”.
The controversial statement was key to Judge Torres’ ruling last month. However, SEC chairman Gary Gensler is in the notion that only Bitcoin could be considered a commodity while the remaining crypto assets should be regarded as securities.
Schwartz detailed the premises for the appeal because there were rumors in the crypto community circles that mentioned the SEC may be looking to appeal the judge’s decision in the higher courts to get more support.
Ripple CEO Brad Garlinghouse celebrated the court’s ruling by going on Twitter to state that it “directly undercuts” the SEC’s claim that “nearly all” cryptocurrencies were securities. He also added that the court decision was likely to “set a positive precedent” for other cryptocurrencies available in the U.S.
However, the final outcome of the SEC vs Ripple lawsuit could be influenced by the court’s choice of whether to accept the appeal request. But one thing is quite clear, the legal battle won’t come to a close any time soon.
At the time of writing, Ripple (XRP) is trading at $0.52 – down 5.3% in the last 24 hours.
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