SEC lawyers have indicated a likely appeal to overturn portions of the recent Ripple Labs decision in a separate enforcement case against TerraUSD and Luna creators Do Kwon and Terraform Labs. The comments were made in a filing to Judge Jed Rakoff of the U.S. District Court for the Southern District of New York.
The portion of the Ripple decision that the SEC is looking to appeal is the determination that “blind bid” or “programmatic” sales of XRP to third parties did not meet all the criteria of a securities offering. The SEC lawyers argue that this part of the Ripple decision was wrongly decided and should not be followed by the court.
A different judge in the same court issued the Ripple decision, which would be considered precedent for the Terraform and Do Kwon case unless the SEC appeals it. Lawyers for Terraform and Kwon have already argued for the dismissal of their case based on the Ripple decision, which they believe is fatal to the SEC’s argument against them.
The SEC’s argument for an appeal centers around the distinction made in the Ripple decision between the expectations of sophisticated institutional investors and retail investors. The lawyers contend that both types of investors should have the same expectations and that the decision creates an artificial distinction between them.
Furthermore, the SEC lawyers claim that the Ripple decision improperly adds a requirement that promises of return must be made directly to an investor, and each investor must know that their money is going directly to the promoter. They argue that the decision takes an unusually narrow interpretation of what defines a security investment.
The lawyers also highlight that courts typically interpret existing law in ways that prioritize the protection of retail investors, the ones who bought XRP in the process that the Ripple decision ruled was not a securities law violation.
If an appeal is pursued, it would go to the Second Circuit Court of Appeals. The SEC is considering various avenues for further review and intends to recommend that the commission seeks such review.