The U.S. Securities and Exchange Commission (SEC) has expressed its intention to potentially appeal a recent ruling on the Ripple Labs lawsuit. The ruling stated that XRP, the cryptocurrency developed by Ripple, should not be classified as a security when sold to retail investors. The SEC argues that this ruling goes against fundamental principles of securities laws, such as the Howey Test. The Howey Test is used to determine whether an investment contract falls under the category of a security.
In a separate lawsuit against Terraform Labs and its founder Do Kwon, the SEC made further comments on the Ripple Labs ruling. This lawsuit accuses Terraform Labs of orchestrating a multi-billion-dollar crypto asset securities fraud. In response to a motion to dismiss from Terraform Labs, the SEC highlighted a number of issues it disagrees with regarding the recent decision on XRP. The SEC states that while some aspects of the Ripple ruling support its claims in this case, it believes that Ripple conflicts with and adds baseless requirements to the Howey Test.
The SEC further stated that it believes certain portions of the Ripple ruling were wrongly decided and that it intends to seek further review. The SEC is currently considering various available avenues for this review. These statements from the SEC come shortly after SEC Chair Gary Gensler expressed his disappointment with the court’s ruling on XRP. Gensler stated that while he was pleased that the court addressed the token as a security for institutional investors, he was disappointed with the decision regarding retail investors.
During a talk on artificial intelligence at the National Press Club, Gensler was asked about the urgent need for clear regulation in the industry. However, Gensler did not provide a specific answer to this question. The SEC’s comments and potential appeal in the Ripple Labs lawsuit has raised questions about the need for clearer regulation in the crypto industry.
Critics of the SEC argue that the agency itself has not consistently followed the Howey Test in its own analysis. They point to the SEC’s acknowledgement on its website that federal courts require commonality, while the SEC itself does not require commonality in its analysis or view it as a distinct part of the Howey Test.
The outcome of the potential appeal by the SEC remains uncertain, but it has implications for the classification of cryptocurrencies and the regulatory framework surrounding them. The case has drawn significant attention from the crypto community and could set a precedent for future lawsuits and regulatory actions in the industry.