Major Blow to SEC: Judge Denies Appeal, Ruling Cryptos Not Securities

By Kevin • October 7, 2023 4:51 pm • Comments

A US federal judge, Analisa Torres, has denied the Securities and Exchange Commission’s (SEC) attempt to appeal a ruling that stated digital tokens are not securities when sold to the general public.

This decision deals another blow to the SEC’s efforts to regulate the cryptocurrency industry, highlighting the legal challenges and regulatory uncertainties facing the sector in the United States.

The case in question revolves around Ripple Labs, the company behind the XRP token. Judge Torres had previously ruled in July that XRP was considered a security only when sold to institutional investors.

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However, she concluded that public sales of XRP on exchanges to retail customers did comply with federal securities laws.

Yahoo reports:

A US judge denied an attempt by the Securities and Exchange Commission to appeal a ruling that digital tokens are not securities when sold to the general public, another blow to the agency’s efforts to rein in the industry.

Federal judge Analisa Torres in the Southern District of New York issued her decision Wednesday in a case involving Ripple Labs and its XRP token, saying there was no “substantial ground for difference of opinion” about her findings.

Torres was the judge who ruled in July that XRP was a security only when sold to institutional investors.

The sale of XRP on public exchanges to retail customers, she said in July, did comply with federal securities laws.

The SEC has been actively pursuing its stance that certain cryptocurrencies are securities, falling under its regulatory purview. It has used this assertion as the basis for multiple lawsuits against major players in the cryptocurrency industry. However, the regulatory agency has faced several setbacks recently.

One of the significant setbacks occurred in August when a federal appeals court ruled in favor of an asset manager seeking to launch the first Bitcoin exchange-traded fund (ETF) despite the SEC’s objections.

The court found the SEC’s reasoning for denying the ETF request “arbitrary and capricious,” further raising questions about the agency’s regulatory approach to cryptocurrencies.

Judge Jed Rakoff’s ruling on July 31 added another layer of complexity to the regulatory landscape. He stated that digital currencies could be considered securities when sold to the general public, contradicting Judge Torres’s earlier ruling.

However, Judge Torres clarified that her decision did not conflict with Rakoff’s, emphasizing the legal complexities surrounding the classification of digital assets.

Reuters.com reports:

The SEC had sought permission to appeal Torres’ findings about “programmatic” sales of XRP and about “other distributions” of XRP as a means of payment for services, saying an appeal would be important to a “large number” of lawsuits.

But the judge found no “substantial ground for difference of opinion” about her findings, and did not agree that an appeal would materially advance the case toward a conclusion.

She also said her decision did not conflict with a July 31 ruling by U.S. District Judge Jed Rakoff in Manhattan, who said the SEC had a “plausible claim” that Terraform Labs’ Terra USD token was a security when sold on public exchanges.

Torres said Rakoff had been considering Terraform’s motion to dismiss the SEC case, and was required to accept all reasonable inferences in the regulator’s favor.

A trial in the Ripple case is scheduled for April 23, 2024.

As the legal battles continue, the outcome of these cases will likely have a significant impact on the future regulation and operation of the cryptocurrency market within the United States.

Market participants and industry stakeholders closely monitor these developments as they seek clarity and regulatory certainty to navigate the evolving cryptocurrency landscape in the country.

The SEC now faces a choice between settling with Ripple before the trial set for April 23, 2024, or potentially seeking another appeal after the trial, adding further uncertainty to the regulatory environment surrounding cryptocurrencies in the US.

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