US SEC seeks to appeal ruling that Ripple XRP isn’t a security

THE US Securities and Exchange Commission (SEC) said it intends to challenge a federal judge’s landmark ruling that Ripple Labs’ XRP token is not a security when sold to the general public.

US district judge Analisa Torres in New York last month said that the crypto firm’s sales of its XRP token to sophisticated investors met the test for an investment contract under federal securities law because those buyers “would have understood that Ripple was pitching a speculative value proposition for XRP with potential profits”. But the judge said that didn’t apply to programmatic investors, meaning the broader public buying crypto on exchanges.

Whether cryptocurrencies are securities has long been a major question hanging over the industry, which has argued it’s not subject to the jurisdiction of the SEC and other regulators. The Ripple case is one of several that have placed the issue before judges.

The agency on Wednesday (Aug 9) told Torres it plans to seek permission to promptly appeal her ruling to the US Court of Appeals for the Second Circuit, saying a timely review is warranted because of the “number of actions currently pending that may be affected” by the way the appellate court decides.

The ruling in Ripple’s favour as to retail sales involves “’controlling’ questions of law because they disposed of the SEC’s claims regarding defendants’ offers and sales at issue”, the SEC said, and resulted in dismissal of claims involving more than half of XRP offers and sales.

The dispute raises important enforcement issues for the agency in many pending cases, including one recently brought against Coinbase, according to the filing.

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The SEC noted that one judge in the same courthouse has expressly rejected the approach taken by Torres. In an SEC case against Terraform Labs and its co-founder, Do Kwon, US district judge Jed Rakoff ruled that the company’s Terra USD token may indeed be a security when sold to retail investors.

Because Torres’s ruling didn’t end the Ripple case, the SEC needs her permission to seek review from the appeals court. The agency will have to convince the judge that the decision involves “a controlling question of law”, that there is “substantial ground for difference of opinion” and that an immediate appeal may speed up the litigation. BLOOMBERG