A federal judge ruled last year that the SEC did not prove Ripple violated securities laws by selling XRP to retail customers on exchanges. Recently, the SEC announced it would appeal this decision, and Ripple has filed a cross-appeal in response, adding another layer to the ongoing legal battle.
What’s Happening?
On the Thinking Crypto podcast, Lawyer James Murphy explained that while the SEC’s exact intentions are unclear, they are likely appealing two main points from the ruling:
Sales on Exchanges: The SEC aims to challenge the judge’s decision that Ripple’s sales on exchanges do not constitute securities transactions. This ruling shocked the SEC, as they previously attempted to appeal it immediately but were denied.
Disgorgement Limitations: The SEC also seeks to address a ruling that prevented them from claiming disgorgement (return of profits) because they lacked evidence of actual financial losses incurred by investors. This decision contrasts with precedents in other circuits, and the SEC hopes to overturn this limitation.
Additionally, there’s speculation about whether the SEC will appeal the $125 million penalty imposed on Ripple, seeking a higher amount. However, it’s uncertain if this part of the ruling would be changed since judges have significant discretion in determining penalties.
How Strong is the SEC’s Case?
Murphy shared his perspective on the likelihood of the SEC winning the appeal. There are about 20 judges on the Second Circuit, and cases are decided by a randomly chosen panel of three. Once the panel is known, lawyers look at past decisions to guess how they might lean. Sometimes, arguments are shaped to appeal to specific judges, similar to tactics used in the U.S. Supreme Court.
He said that when the summary judgment came out, many people criticized it, and some legal experts predicted it would be overturned. Lawyers from traditional backgrounds believe there’s a chance the ruling on secondary market trades might be reversed. However, he thinks Judge Torres’s decision will likely stand, although nothing is certain.
