investment contracts

The SEC highlighted contradictory conclusions from similar cases, along with other pending decisions as some of the contentious legal issues.

The U.S. Securities and Exchange Commission has submitted a filing urging the court to grant its motion to appeal a ruling from the Ripple Labs lawsuit that deemed that XRP was not a security when sold to retail investors.

The agency argued that there are “knotty legal problems” surrounding the court's application of the law — specifically the Howey Test — that warrant a review.

#XRPCommunity #SECGov v. #Ripple #XRP BREAKING: The SEC has filed its Reply Memorandum in Further Support of its Motion to Certify Interlocutory Appeal.https://t.co/KE1MzYKbVD

— James K. Filan (@FilanLaw) September 8, 2023

As per a Sept. 8 filing, the SEC called for the U.S. District Court for the Southern District of New York to grant its motion for interlocutory appeal, and “stay further proceedings until the resolution of that appeal.”

“The SEC respectfully requests certification for appellate review now because the issues raised by the Court’s order on summary judgment (D.E. 874) (‘Order’) present precisely the kinds of ‘knotty legal problems’ that led Congress to provide for interlocutory review.”

Judge Analisa Torres ruled in July that XRP is generally not a security under SEC guidelines, particularly when distributed via programmatic sales (e.g. sold to retail via exchanges).

In the latest filing, the SEC argued that the rulings on programmatic sales and other distributions present “legal questions” that are significant enough for the agency’s interlocutory appeal to be approved by the court.

The SEC suggested that this is down to there being a legal gray area as to whether certain crypto assets fall under the classification of investment contracts via the Howey Test or not, as it highlighted court proceedings from other cases.  

“At least two opinions within this District reach contradictory legal conclusions on these issues and many other courts are considering whether similar offers and sales [...] satisfy Howey,” the SEC stated, adding that:

“While interlocutory appeal should be the exception, not the rule, this is the unusual case where the Defendants themselves say that the issues have industry-wide significance and are of special consequence, and thus is precisely the type of case as to which the Second Circuit has invited interlocutory appeal.”

These sentiments however, seemingly contradict previous statements from the agency and its chairman Gary Gensler.

On multiple occasions, Gensler has staunchly shot down the need for new crypto regulation, as he has asserted that the SEC already has clear guidelines that adequately cover the full scope of the crypto market.

Such a view includes the notion that the most of the crypto on the market falls under the definition of a security.

Related: Here’s what happened in crypto today

In a Sept. 8 tweet, Ripple’s chief legal officer Stuart Alderoty called the filing “hypocritical” as he noted that: “After years of its chairman saying the ‘rules are clear and must be obeyed’ the SEC now cries that an appeal is urgently needed to resolve these ‘knotty legal problems’."

Another SEC filing, another hypocritical pivot…

After years of its chairman saying the “rules are clear and must be obeyed” the SEC now cries that an appeal is urgently needed to resolve these “knotty legal problems." https://t.co/ige4neIWRD

— Stuart Alderoty (@s_alderoty) September 8, 2023

Coinbase’s chief legal officer Paul Grewal also chimed in by questioning how crypto firms can be on “fair notice” if there are knotty legal questions that need to be considered in court.

The SEC initially moved to appeal and stay the decision from Torres in August, arguing that there was “substantial ground for differences of opinion.”

On Sept. 1, Ripple Labs fired back by filing a memorandum of law in opposition, arguing that the SEC had unsubstantial grounds to request an appeal.

Magazine: Crypto regulation — Does SEC Chair Gary Gensler have the final say?