No “Glorious Final Victory” for the SEC in the Second Circuit Court of Appeals
The U.S. Securities and Exchange Commission (SEC) is unlikely to achieve a decisive victory in the Second Circuit Court of Appeals. According to Hogan, attempts by the SEC to appeal the case could lead to disastrous results for the agency. Even if the SEC somehow wins the appeal, the case would return to the lower court for further factual determination.
In a significant blow to the SEC, Judge Analisa Torres ruled in July 2023 that the XRP token was not a security when sold to retail investors on exchanges. However, Torres also ruled that Ripple violated federal securities laws through its sales of XRP to institutional investors.
Last month, former SEC Division Chief Kristina Littman suggested that the SEC might let the Ripple ruling stand as a district court opinion without elevating it to the circuit level. Nonetheless, the Ripple ruling was explicitly rejected by U.S. District Judge Jed Rakoff, who presided over the SEC’s case against Terraform Labs. Judge Rakoff asserted that the legal status of a token should not depend on whether the investors were institutional or individual. This rationale was also adopted in the SEC’s win in the Coinbase case.
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It remains to be seen whether the SEC will choose to appeal the case and challenge Judge Torres’ ruling despite achieving several victories. Currently, the case is in the remedies phase, with Ripple attempting to significantly reduce fines and penalties. In July, SEC Chair Gary Gensler hinted that the SEC might appeal Torres’ ruling, stating, “We are still looking at it and assessing it.”
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