Pro-XRP Lawyer Explains Why SEC’s Gary Gensler Could Appeal and Face Another Court Defeat

The potential for the U.S. Securities and Exchange Commission (SEC) to appeal in the Ripple vs. SEC case is being discussed widely, with speculation that an appeal might drag the lawsuit into 2025. The SEC has accused Ripple of selling XRP as an unregistered security, while Ripple argues that XRP is not a security. Despite recent court victories for Ripple, the possibility of an appeal remains.

Recently, journalist Eleanor Terrett shared on X that a former SEC lawyer, who recently left the agency, revealed the SEC is likely to appeal Judge Torres’s July 2023 ruling in the Ripple case. The reason? The SEC believes the decision on XRP programmatic sales is wrong and should be challenged.

Pro-XRP lawyer John Deaton responded and said that Judge Torres did not apply all three parts of the Howey Test. Some consider it a four-part test due to the third prong having two elements.  Deaton has been involved in the Ripple case for over 2.5 years and has contributed as an Amicus Brief, submitting 3,800 XRP Holder Affidavits.

Deaton believes that an appellate court is unlikely to find that Judge Torres made an error when applying the third prong. He said that the SEC didn’t present expert testimony on XRP holders (which was excluded), but the Judge did rely on the affidavits from XRP holders.

Ripple Vs SEC Appeal Deadline: What’s Next?

Deaton explained that while Judge Torres acknowledged that secondary sales could potentially be investment contracts under different circumstances, the facts in the Ripple case do not meet the Howey Test criteria. Therefore, the ruling is likely to be upheld on appeal, but this doesn’t prevent the SEC from arguing about secondary sales in future cases.

Additionally, Judge Torres ruled that secondary sales on exchanges didn’t satisfy the third prong of the Howey Test, and since all prongs must be met, she didn’t need to address the common enterprise factor. 

Deaton views this common enterprise factor as the weakest part of the SEC’s case. He said, “Even if the 2nd Circuit ruled Judge Torres erred applying the 3rd prong, the SEC doesn’t win the case. The case would go back to Judge Torres for her to apply the common enterprise prong and she would likely rule the SEC didn’t establish a common enterprise. If that happened, the SEC would lose AGAIN and then have to appeal all over.”