Yesterday the Securities and Exchange Commission (SEC) sent a letter to Judge Torres stating it plans to file an interlocutory appeal re the summary judgement in the Ripple cryptocurrency case. It also wants to pause further proceedings in the case until the outcome of the appeal.
Torres previously found the manner in which Ripple sold XRP crypto tokens to institutional investors classified it as a security based on the Howey Test. However, indirect programmatic sales via exchanges to retail investors were not securities. Likewise for other XRP distributions.
Many found it odd that the same token might sometimes be treated as a security and sometimes not, depending on how it is sold.
SEC cites contradictory opinion of another judge
Another judge in the same court has already rejected Judge Torres’ decision. In a lawsuit regarding Terraform Labs – the company that founded the Terra stablecoin that triggered the crypto crash – Judge Rakoff had strong opinions.
“That a purchaser bought the coins directly from the defendants or, instead, in a secondary resale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts,” wrote Judge Rakoff.
The SEC mentioned Rakoff’s views in its letter. It also argued for the need to settle this matter of law as it impacts other pending cases, including the SEC’s actions against Coinbase, Binance and TRON founder Justin Sun.
It would also result in a single remedies phase.
How much is Ripple going to need to pay?
On that point, the SEC also touched on Ripple’s liability for the institutional sales, where Judge Torres ruled in favor of the SEC. Those XRP sales amounted to $1.3 billion before the case was filed. But the SEC estimated there have been an additional $3 billion of XRP sales by Ripple since then, which were all related to its On Demand Liquidity (ODL) offering and hence are institutional sales.