Ripple Ruling ‘On Shaky Ground,’ Will Likely Be Overturned, Former SEC Lawyer Says

Updated: 17 July 2023

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Ripple Labs, Inc.’s landmark legal victory against the Securities and Exchange Commission last week is “on shaky ground’’ and is likely to be overturned, said a former SEC lawyer.

It’s on shaky ground because of factors including that the ruling says a security can be a token sometimes but not others, and ‘’that just can’t be right,’’ said John Reed Stark, a former attorney in the SEC’s enforcement division for 15 years, in a LinkedIn post.

“The decision resides on shaky ground, is likely (and ripe) for appeal, will likely result in reversal and is not necessarily a cause for celebration,’’ he said. “The bottom line: Stock is always stock – it can’t transmogrify into ‘non-stock.’ So my take is that the SEC will appeal the Ripple decision to the 2^nd Circuit and the 2^nd Circuit will overturn the District Court’s rulings.’’

Ripple Surged

Ripple’s payments token XRP has surged since District Judge Analisa Torres in New York ruled on Thursday that it is not a security when sold to the public, giving Ripple and the entire crypto industry what appeared to be a landmark partial victory.

Torres also ruled that XRP is a security when sold to institutional investors, giving the SEC a partial win. The SEC brought the action against Ripple, arguing that XRP is a security and that the company had issued unregistered securities to investors.

Rippled countered that XRP is not a security as it is not an investment under the so-called Howey test. Torres made a summary ruling with the case now set to go to trial and potentially appeals.

Still, former Department of Justice federal prosecutor Katie Haun, founder of San Franciso-based venture capital firm Haun Ventures, tweeted that the controversial ruling may not be appealed any time soon, partly because the current situation favours the SEC.

“An immediate appeal seems unlikely both because the agency would have to ask the court to split this decision from the portion going to trial and because I’m skeptical the SEC actually wants legal clarity,’’ she tweeted. “The commission benefits from the current confusion and losing these issues on appeal would jeopardize its entire enforcement agenda. So I’d be surprised if the SEC tried to appeal now.’’

Some non-legal advice musings on the Ripple decision, including two main takeaways:

1/ The Court drew a reasonable line and overall it's a good outcome for the industry. For other suits w/ the SEC, we believe the Supreme Court’s “major questions doctrine” will play a larger…

— Kathryn Haun (@katie_haun) July 15, 2023