Crypto attorney John Deaton stated that an appeal is far from being considered a setback, rebutting a claim made on Twitter. He emphasized that the court victory should not be underestimated.
Deaton’s remarks follow federal judge Analisa Torres’ recent ruling that XRP, the token powering Ripple’s payment network, is not inherently a security except when sold to institutions for fundraising.
Ripple has been in legal proceedings with the SEC since 2020, when the regulator alleged Ripple raised $1.3 billion through unregistered securities offerings.
SEC Chair Gary Gensler expressed disappointment with parts of the ruling, which could impact other tokens facing regulatory scrutiny. Court filings on Friday by the SEC against Terraform Labs indicated the Ripple ruling may soon be appealed.
Crypto Law founder John Deaton stated that even if appealed, it would take around two years for a decision from the 2nd Circuit Court. Until then, Judge Torres’ ruling remains legally binding. Deaton believes the appeals process is lengthy, so the recent court victory still stands for now.
Judge Torres determined that programmatic sales of XRP to retail investors did not satisfy the Howey Test, which assesses whether an investment contract exists when selling an asset. This was because public XRP buyers lacked a reasonable expectation of profits from Ripple’s entrepreneurial or managerial efforts.
Judge Torres elaborated that the structure of programmatic sales meant public purchasers were unaware they bought XRP from Ripple. Thus no profit expectation could be tied to Ripple’s work, per her decision.
Judge Torres stated that many programmatic XRP buyers likely expected profits, but this expectation did not come from Ripple’s efforts since they were unaware of buying from Ripple.
Crypto attorney John Deaton explained that even if the SEC successfully contests Judge Torres’ Howey Test analysis here, she could still decide similarly when examining the test’s other elements like an investment of money or a common enterprise.
Deaton argued this would present greater difficulty for the SEC, as proving a common enterprise is much harder than showing an expectation of profits from others’ efforts under the Howey Test.
Separately, Ripple CEO Brad Garlinghouse, who termed the ruling an unambiguous victory for Ripple and US crypto, criticized the SEC’s efforts to become the primary digital asset regulator.
Brad Garlinghouse tweeted that the SEC created this predicament by declaring itself the crypto regulator without legal authority, arguing legislation rather than enforcement is needed to provide clear rules and protect retail investors.
Ripple’s Chief Legal Officer Stuart Alderoty replied that the SEC only has jurisdiction over securities, so without security, the SEC has no role. He stated that feigning jurisdiction when none exists is merely a political power play that harms everyone.
