The American financial regulatory body, the Securities and Exchange Commission (SEC), is debating whether to challenge a recent court decision it lost to Ripple Labs. According to the court judgment, Ripple’s native XRP token cannot be considered a security when sold to retail investors.
SEC Hints At Appeal
According to the financial watchdog, the recent decision conflicts with fundamental securities law principles, specifically the Howey test. The regulator often uses this test to determine whether an asset meets the criteria for an investment contract.
Meanwhile, the agency argues that the latest court decision does not follow accepted legal precedents. The SEC recently referenced the Ripple Labs lawsuit in a different court case against Terraform Labs and its founder, Do Kwon.
Moreover, the commission responded to Terraform Labs’ motion to dismiss on July 21. The SEC cited the court’s most recent Ripple Labs ruling in its response and argued that it had several issues.
The SEC has stated that contrary to what the defendants assert, the Ripple ruling reinforces many of its claims in the current case. But the regulator disagrees with the defendant’s arguments regarding the XRP sales process.
Hence, it argues that the Ripple ruling introduces conflicting elements and unwarranted conditions to the established Howey test and its related principles.
SEC Chair Comments
Meanwhile, the SEC Chair, Gary Gensler, has expressed his disappointment with the court’s latest ruling that XRP is not a security when sold to retail investors.e In his words, “We are pleased that the court addressed the aspect that an asset for institutional traders is a security, but dissatisfied in the other aspect about small scale investors.”
Gensler made the remarks in a recent interview and said, “We’re still looking into it and will make a decision in due course.” While speaking about the role of Artificial Intelligence in finance at the National Press Club, journalists asked Gensler to clarify whether there’s a need to establish regulatory clarity for the crypto industry.
However, the SEC chief declined to make any comment. Following the court ruling, top American attorney and Coinbase’s chief legal officer, Paul Grewal, made further clarifications about Judge Torres’ decision regarding the security status of XRP.
He emphasized that the XRP digital token does not have the characteristics listed in the Howey test to be an investment contract, transaction, or scheme.” Grewal supported his argument by referring to page 15 of the ruling.
Furthermore, the attorney stated that if the commission had cited at least one similar case requiring the Howey test, it would have won the case against Ripple Labs. According to him, the commission’s undoing is its inclination to argue policy over the law.
Grewal explained that such cases often require strong proof when interpreted according to the law. Furthermore, other observers believe that the SEC’s insistence that the court based the categorization of XRP according to the Howey test didn’t help the regulator’s arguments.
Instead, it helped strengthen the arguments of Ripple Labs’ legal counsels. Nevertheless, several industry analysts opined that there is a high probability that the regulator will lose its appeal against the recent court ruling.