Ripple has not won, but it has definitely not lost the next step in the lawsuit

Ripple neither won nor lost the next step in the lawsuit.

Source: Blockworks

Compiled by: BitpushNews Mary Liu

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A U.S. federal district judge has made a partial summary judgment in favor of Ripple in the SEC vs Ripple litigation case, but the case is not yet over.

The court ruled that while Ripple’s XRP institutional sales constituted an unregistered securities offering, the programmatic sales conducted through exchanges did not constitute such behavior, giving the company a partial victory.

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However, the judge did not resolve several other issues in the case, and this is not the final judgment.

Judge Analisa Torres wrote in her Thursday filing that the court will schedule the next trial to address the unanswered questions in the summary judgment.

What will the trial phase determine?

Essentially, Torres’ ruling lays the foundation for whether the Ripple case will be controversial when it enters the trial phase.

In the summary judgment, the court ruled that “programmatic sales” (defined as sales conducted by Ripple Labs to buyers through exchanges) are not securities. “Secondary sales,” which include sales made by parties other than Ripple Labs or its executives to buyers, whether on or off exchanges, however, were not explained in Torres’ summary judgment.

Since no sellers other than Ripple Labs and employees are named as defendants, this particular issue will not be further litigated. Buyers in the trading platform process do not know whether the purchased crypto assets come from anyone other than the company or its executives.

The judgment does not determine whether a written contract is required as part of the Howey test. Ripple argues that it does not qualify as a security because it does not have a written contract.

It must also be determined in the trial whether XRP follows strict vertical commonality, meaning whether investors and initiators are financially interdependent on each other’s success.

The trial will also focus on the first and second aspects of the Howey test. The filing states that the first aspect involves whether “money is invested” as part of the relevant transaction, and the second aspect focuses on whether there is a “common enterprise.” Torres did not determine in the summary judgment whether these two points were established.

The fate of Ripple’s founder and former CEO Christian Larsen, as well as former COO and current CEO Brad Garlinghouse, will also be determined in the upcoming trial. In the initial complaint filed in December 2020, the SEC accused the two of aiding and abetting violations of securities laws. This was not ruled on in the summary judgment.

Torres wrote, “Whether the common enterprise extends to include ‘other XRP holders,’ defendants Garlinghouse and Larsen, the ‘XRP ecosystem,’ or any other entity” must also be determined in the trial.

What is the probability of the SEC appealing?

It is unclear whether this unique legal battle has come to an end.

In a statement on Thursday, the SEC said it was “pleased” with the court’s finding that Ripple “in certain circumstances” violated securities laws by selling XRP tokens as investment contracts.

However, the CSRC supplemented that it will “continue to weigh the decision,” but did not immediately comment on whether it is considering an appeal.

Rashan Boykin, general counsel of Hashflow, said that it is expected that the SEC will appeal the ruling that programmatic sales are not securities, as the SEC has also used this argument in other crypto cases, including the ongoing case against Binance.

Stephen LianGuailley, litigation partner and co-chair of the digital commerce team at Brown Rudnick, warned on Thursday that Ripple’s ruling is “a partial summary judgment by a district court judge.”

He wrote on Twitter, “While persuasive, it is not binding on other courts and may be appealed and overturned.”

Preston Byrne, partner at Brown Rudnick, wrote in a blog post that certain aspects of the ruling, such as those involving “programmatic sales,” may be affected in a potential appeal.

For example, Ripple Labs has been the main promoter of XRP, regardless of whether buyers are aware that they are purchasing tokens from that entity. Preston mentioned that the SEC won its case against Telegram and its blockchain development subsidiary in 2020.

Preston Byrne wrote, “The court found that ‘Telegram was committed to the project’ rather than the resale efforts of intermediaries, which constituted ‘the essential efforts of others.’ Therefore, I expect Ripple to lose on appeal.”

LianGuaitrick Daugherty, partner at Foley & Lardner and adjunct professor of digital assets at Cornell Law School, stated that if the SEC happens to win the appeal in the Second Circuit, Ripple will continue to appeal to the Supreme Court.

Impact on the Industry

From the market reaction in the crypto market, the industry has already regarded Thursday’s summary judgment as a significant victory.

XRP soared over 73% within hours of the ruling. Bitcoin (BTC) and Ethereum (ETH) both rose 5% and 7%, respectively, after exchanges such as Coinbase and Kraken announced that they will relist XRP.

Ryón Nixon, founding partner of Horizons Law, told Blockworks, “This is just the first step, and an appeal is almost certain to follow, and even this ruling does not resolve many other important issues. This ruling underscores that regulatory agencies are not judges, juries, and executioners in the realm of digital assets.”

Other legal experts have expressed doubt as to whether Thursday’s ruling will severely impact the SEC’s “enforcement regulatory” strategy.

Joe Castelluccio, partner at Mayer Brown and head of the firm’s financial technology and digital assets, blockchain, and cryptocurrency team, said, “It is one of the few challenges the SEC has faced in this space, and this decision provides a window for other structures leading to token insurance and secondary market trading. However, I don’t think this decision will prevent the SEC or lead to a change in its attitude towards the industry.”

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