SEC May Skip Ripple Appeal to Avoid Risky Precedent, Says Former Cyber Unit Head

• The Securities and Exchange Commission (SEC) may decide not to appeal the partial summary judgment ruling in favor of Ripple Labs.
• This decision could prevent establishing a potentially unfavorable legal precedent in higher courts.
• The crypto community is waiting for the court’s remedies phase ruling expected by the end of Summer 2024, after which the SEC’s window to appeal will open.

The SEC’s potential choice to refrain from appealing Judge Analisa Torres’ ruling could reflect a strategic move to avoid solidifying adverse legal precedents in higher courts.

Potential Implications of the SEC’s Decision Not to Appeal the Ripple Case

Former SEC Enforcement’s Cyber Unit head Kristina Littman discussed the SEC’s possible strategies regarding their next steps with Ripple Labs during a recent conference on digital assets. Given the mixed opinions from judges on similar cases, Littman suggested that the SEC might consider accepting the district court’s decision.

She expressed, “I’ll be curious to see whether the parties appeal there.” This comment underscores the uncertainties and strategic calculations happening in the background.

Littman further noted, “There’s some speculation that because Judge Rakoff and the Terra opinion explicitly disagreed with Judge Torres’ logic from the Ripple opinion, and then Coinbase doesn’t really address Ripple’s opinion, but you know, pretty explicitly adopts the Terra logic.” Her statements imply that differing judicial opinions add complexity to the decision to appeal.

She elaborated on the potential for judicial conflict, “There’s speculation that the SEC might let the Ripple opinion stay as a district court opinion to avoid elevating it to a circuit level, which could elicit unfavorable law when they have otherwise favorable rulings post-Ripple litigation.”

Significance of the Ruling

In July 2023, the initial ruling declared that Ripple’s programmatic sales and secondary market transactions do not qualify as security transactions, a major triumph for Ripple. Judge Torres concluded that only Ripple’s sales of XRP to institutional clients constituted security transactions, marking a pivotal moment in the ongoing debate over the classification of XRP under U.S. securities laws.

This judgment was based on meticulous interpretations of U.S. securities regulations, which do not explicitly cover digital assets, highlighting the complexities involved.

Adding to the intricacy of the situation are differing rulings in other similar cases. For instance, in SEC vs. Terraform Labs, Judge Rakoff dismissed Judge Torres’ reasoning used in the Ripple case. Furthermore, Coinbase’s alignment with the judgment in the Terraform Labs case rather than the Ripple decision further complicates the regulatory framework.

Littman’s insights suggest that the SEC might avoid testing the uncertain legal environment at the appellate level, which could set adverse precedents. By refraining from appealing, the SEC may aim to maintain a more adaptable regulatory approach.

Conclusion

In summary, the SEC might strategically opt not to appeal the ruling in favor of Ripple Labs, thereby avoiding the solidification of potentially adverse legal precedents at higher courts. This approach allows the SEC to retain flexibility in its regulatory enforcement while navigating the evolving landscape of digital assets.