- An appeal by the SEC in the Ripple case wouldn’t represent a setback, according to John E Deaton
- The lawyer leading a class-action lawsuit against the agency believes it would take two years for a decision
- He added that a victory for the SEC wouldn’t necessarily have the anticipated practical impact
An appeal by the Securities and Exchange Commission (SEC) over elements of the ruling in its case against Ripple would be “not even close” to representing a setback, according to the man leading a class action lawsuit against the agency. John E Deaton, who launched the suit on behalf of XRP buyers in January 2021, says that it would take two years for a decision to be reached in any appeal and added that even if the appeals judges rule that the Howey test was misapplied it doesn’t mean an automatic practical victory for the agency
SEC Appeal Victory May by Phyrric
When the SEC vs Ripple verdict was handed down this month, the crucial takeaway was that XRP itself was ruled to not be a security. Judge Analise Torres of the United States District Court for the Southern District of New York ruled that “XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract,” which is what the entire case hinged on for most.
Talk of an appeal by the SEC was quick and inevitable, but in a tweet posted over the weekend, Deaton was bullish on the prospects of Ripple’s success:
An appeal is not even close to be a setback. First, it will be two years from now before a decision is issued by the 2nd Circuit, if it’s appealed. The Torres Decision is the law until then – at least in the 2nd Circuit. Second, even if the 2nd Circuit said Torres was wrong… https://t.co/GzW31D9edQ
— John E Deaton (@JohnEDeaton1) July 22, 2023
Deaton argued that even if the appeals court rules that the third prong of the Howey test (expectations of a profit from the investment) had been misapplied, that ruling wouldn’t automatically apply to secondary sales. It is his contention that the other factors in the Howey test would then come back into play which could still allow the original ruling to stand, given that the SEC still wouldn’t have satisfied the “common enterprise” factor.
Former SEC Heads Disagree
Such views are different from those expressed by those on the other side of the fence. After the verdict, former SEC chief John Reed Stark expressed his belief that the verdict “resides on shaky ground,” claiming that the court took into consideration the cryptocurrency community’s perspective on the SEC’s inconsistent application of the Howey Test to tokens in the secondary market. However, he highlighted Ripple’s failure to successfully reinterpret the Howey test, which played a crucial role in the court’s decision.
Additionally, other professionals, like former SEC regional director and attorney Marc Fagel, also raised doubts about certain aspects of the Ripple judgment. Fagel questioned the inconsistency in treating assets under the Howey Test and predicted that certain elements of the case might be subject to appeal. He anticipated both parties to appeal the areas in which they lost, with the SEC potentially emerging victorious in the appeal process.
