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SEC says part of the Ripple ruling was ‘wrongly decided,’ hints at filing appeal

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The U.S. Securities and Exchange Commission (SEC) said that a portion of the Ripple ruling was “wrongly decided,” according to documents filed in court on July 21. The part of the ruling referred to — the part that went against the SEC — stated that the sale of XRP on exchanges did not constitute a sale of securities.

The SEC’s comments were part of the filing in its lawsuit against Terraform Labs and its founder, Do Kwon. The SEC was responding to a motion to dismiss filed by the defendants, which referred to the Ripple case ruling from earlier this month.

The SEC’s comments came less than a week after SEC chair Gary Gensler said he was “disappointed” with the Ripple ruling on retail sales.

Ripple ruling conflicts with Howey Test, SEC says

The Ripple ruling, widely regarded as a win for the U.S. crypto industry, was mostly a win for the SEC, not Ripple. The SEC noted that “much of the Ripple ruling supports the SEC’s claims.”

Moreover, the court ruling concerning the sale of XRP to retail investors “conflicts with and adds
baseless requirements to Howey and its progeny,” the SEC wrote, adding:

“… Ripple’s analysis of Programmatic Sales [retail sales] cannot be squared with Howey and decades of federal securities laws jurisprudence.”

The Ripple ruling found that the sale of XRP to institutional investors counted as a sale of securities. According to the SEC, the court should have reached a similar conclusion regarding retail sales of XRP.

However, the SEC argued that the Ripple ruling created an “artificial distinction” between “sophisticated” institutional buyers and retail investors. Moreover, the ruling “improperly transforms Howey’s reasonable investor inquiry into a subjective one, and turns on its head the reasoning underlying Howey and other cases,” it added.

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Author: Monika Ghosh

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