In a recent statement, the SEC claimed that Ripple’s recent decision was incorrect, while revealing that it had already decided and was currently preparing to issue an appeal.
There have been contexts intertwined with the latest legal disputes with the United States Securities and Exchange Commission (SEC), which involves Terraform Labs and its co-founder, Do Kwon.
Notably, the recent SEC motion against Terraform Labs has reignited discussions around the landmark. signaling a possible call on the horizon.
Institutional vs. Retail: Diverging Perspectives
In the , the court determined that Ripple’s XRP token sales to institutional investors violated SEC rules. However, the judge ruled that Ripple’s offerings to retail investors on exchanges did not violate those same regulations. This bifurcation of institutional and retail sales was widely seen as a win for the crypto industry.
Contrary to this view, the SEC, in its latest filing against and Kwon, expressed their disapproval. The agency said:
“The decision creates an artificial distinction between the expectations of sophisticated institutional investors and those of retail investors.”
In the SEC’s view, the ruling restates the decades-old Howey test, a measure used to identify when assets are securities, turning it into a more subjective standard.
As a result, the SEC asked the court to reject this part of the Ripple decision and hinted at a possible appeal in the Ripple case.
The impact of the Ripple ruling on the Terraform Labs lawsuit
The Ripple judgment has become a crucial reference in the ongoing lawsuit against and Kwon. Their legal representatives cited the Ripple ruling in their motion to dismiss, arguing that it “affirms the legal insufficiency of the SEC’s argument.”
They were referring to the SEC’s assertion that certain tokens, including the ill-fated stablecoin TerraUSD, were securities due to their method of sale.
However, the SEC doubled down on its accusations that Terraform Labs and as part of a fraudulent scheme, causing a loss of at least $40 billion in market value. The SEC also pointed out that the institutional investor aspect of the Ripple decision supports its case against Terraform Labs.
The SEC notes that institutional buyers in such a case (such as trading firms that purchased crypto assets from Terraform Labs without resale restrictions) bought ostensibly on the grounds that the assets were an investment on top of Terraform Lab’s initiatives.
Legal entanglements involving the SEC, Ripple Labs, and now Terraform Labs, highlight the evolving dynamic between the emerging crypto industry and established securities regulations. The nuanced interpretation of these regulations with respect to cryptocurrencies such as XRP and TerraUSD has far-reaching implications for the industry. How these cases play out in court will set precedents that could shape the crypto landscape for years to come.
SEC Prospective Appeal
The SEC’s recent petition reveals its intention to challenge the federal court’s decision in favor of . US District Judge Analisa Torres has confirmed that nearly half of Ripple’s XRP sales do not violate investor protection laws. The verdict raised hopes among other defendants involved in disputes with the SEC over their sales of cryptocurrency, which the SEC says often constitute illegally sold securities.
This court ruling has become a beacon of hope for defendants like Do Kwon, co-founder of Terraform Labs. Kwon, who is currently serving a prison sentence, is facing a lawsuit from the SEC alleging fraudulent activity and various violations of the law. The lawsuit was filed in February in Manhattan federal court. In light of Ripple Labs’ recent ruling, Kwon’s defense is using it as a basis to refute the SEC charges.
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The SEC signaling its intention to appeal the , a cloud of uncertainty hangs over the crypto industry. The final decision on the Ripple case could profoundly influence ongoing and future lawsuits, including Terraform Labs.