SEC Capitalizes Rakoff’s Terra Rejection, Files Appeal Against XRP Ruling

• SEC appeals Ripple’s lawsuit win, citing substantial legal differences in Judge Torres’ ruling.
• Judge Torres categorized XRP sales to institutional investors as securities, differing from programmatic sales.
• Judge Rakoff’s dismissal prompts SEC’s interlocutory appeal in Ripple’s case, sparking community debate.

While the crypto community celebrated Ripple’s win in the SEC lawsuit a few days ago, the battle continues as the regulatory body seeks to appeal against Judge Analisa Torres’ ruling. In order for its request for an interlocutory appeal to be granted, the securities regulator stated that Judge Torres’ decision regarding Ripple’s structured sale of XRP and other disbursements revolved around “controlling questions of law on which there is substantial ground for differences of opinion.”

On one hand, Judge Torres ruled that the sales of XRP by Ripple to institutional investors were categorized as securities, whereas sales through programmatic methods and other distributions were not. She justified this by highlighting that institutional investors anticipated profits directly from Ripple, whereas retail purchasers held distinct anticipations.

On the other hand, Judge Rakoff took a different stance by rejecting Terra and its founder Do Kwon’s request to dismiss the SEC’s lawsuit against them, despite the precedent set by Judge Torres’ ruling. Judge Rakoff asserted firmly that the Howey test, a pivotal criterion for determining securities in the US, does not make a distinction among buyers. Judge Rakoff’s Terra decision read:

The Court rejects the approach recently adopted by another judge of this District in a similar case, SEC v. Ripple Labs Inc., 2023 WL 4507900 (S.D.N.Y. July 13, 2023). There, that court found that “[w]hereas … [i]nstitutional [b]uyers reasonably expected that [the defendant crypto-asset company] would use the capital it received from its sales to improve the [crypto-asset] ecosystem and thereby increase the price of [the crypto-asset].

Meanwhile, the SEC monopolized the opportunity, leveraging Judge Rakoff’s dismissal as a basis to seek an interlocutory appeal in the Ripple case. Following the disclosure of the SEC’s intention to appeal, the crypto community swarmed Twitter with opinions. Ripple’s Stuart Alderoty argued the SEC lacked the immediate right to appeal, hence their request for interlocutory appeal permission. Additionally, Attorney Jeremy Hogan clarified the SEC’s appeal focused on losses from programmatic and individual sales, not XRP’s security status.