Ripple is Facing Some Legal Headwinds Again This Week

Another month, another Ripple front-page story. This time Ripple Labs has taken a clear stance against the recent move by the Securities and Exchange Commission (SEC), as they seek permission for an interlocutory appeal following a summary judgment order. In straightforward terms, Ripple’s Chief Legal Officer, Stuart Alderoty, expressed their opposition on Twitter, er, I mean on X. He emphasized that there isn’t any exceptional circumstance at play that would warrant a departure from the standard practice of resolving all issues concerning all parties before considering an appeal.

The backdrop of this is the legal clash that has enveloped Ripple and the SEC since 2020. The SEC has alleged that Ripple unlawfully raised $1.3 billion in 2020 by selling XRP, which they regard as an unregistered security. This legal tussle has also targeted Ripple’s CEO, Brad Garlinghouse, and co-founder Chris Larsen.

Last month, U.S. District Judge Analisa Torres ruled that some of Ripple’s XRP sales, known as “programmatic,” were not in violation of securities laws due to a blind bid process in place for these sales. This decision brought much jubilation within the crypto community, propelling the price of XRP upwards. However, Judge Torres also determined that other direct sales of the token to institutional investors did qualify as securities, handing the SEC a partial victory.

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What’s the SEC’s reaction?

In response to the partial outcome of its ongoing battle against Ripple Labs, the SEC has conveyed its intention to contest the partial setback. It has communicated to the Southern District of New York court its plan to seek an interlocutory appeal.

Okay but what does all this mean? Basically, the SEC now believes that it’s justified in seeking an “interlocutory review”, which is essentially a review of an order that isn’t final yet. To support this position, the SEC pointed to a recent case involving Terraform Labs where a judge rejected the approach taken by Judge Torres.

The specific focus of the SEC’s appeal lies on two key aspects: firstly, the judgment regarding programmatic sales, and secondly, the handling of “other distributions” involving XRP being exchanged for goods and services. However, the SEC’s journey to pursue this appeal isn’t straightforward. It requires approval first from the United States District Court for the Southern District of New York, and subsequently, from the court of appeals. If both of these approvals are granted, then the SEC needs permission from the Second Circuit, a higher appellate court, which would then delve into the interlocutory appeal. 

Why is all this relevant to us traders?

Well, this series of steps underscores that this legal battle is far from reaching its conclusion. This fact has been reflected in the somewhat sharp decline in XRP’s price this week. Market sentiment has clearly been responding to these recent regulatory developments. Traders, especially XRP futures traders, are well advised to approach XRP’s price action with the utmost of caution this month.

Picture of Jeff Sekinger

Jeff Sekinger

Founder & CEO, Nurp LLC

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