Legal Experts Analyze Ripple vs SEC Clash: Relationship Between Ripple and XRP Purchasers Questioned

Ripple Vs. SEC

Legal specialists in the crypto field are responding to the SEC’s intention to challenge Ripple’s recent court triumph.

The SEC recently sought approval to contest the decision made by Judge Analisa Torres regarding Ripple’s systematic XRP sales and other token distributions.

It’s essential to note that Judge Torres determined that these transactions don’t qualify as investment contracts. Her decision was primarily based on the third criterion of the Howey test, which revolves around “a reasonable expectation of profits to be derived from the efforts of others.”

According to Judge Torres’ ruling, she determined that retail purchasers of XRP did not anticipate deriving profits directly from Ripple’s endeavors. Consequently, she classified the programmatic sales of XRP on exchanges as not falling under the category of securities.

Nonetheless, the SEC has conveyed discontent with this verdict and has recently sought authorization to proceed with an appeal.

Related article: Ripple Announces Plans to Exploit the Booming Hong Kong Blockchain Ecosystem

Common Enterprise Dilemma in Ripple vs SEC Case

Subsequent to this development, leading legal authorities have been engaging in conjecture regarding the potential implications of an approved appeal.

Michael Selig, a legal representative affiliated with the law firm Willkie Farr & Gallagher LLP, participated in this discourse yesterday during an interview with CoinDesk.

Attorney Selig theorized that the SEC might face challenges regarding the “common enterprise” element of the Howey test in its efforts to reverse Judge Torres’ ruling on programmatic sales, regardless of whether investors anticipated profiting directly from Ripple’s actions.

“A lot of us have really been focused on the common enterprise prong for these programmatic sales. Even if there is a reasonable expectation of profits based on the efforts of others, there is no common relationship between Ripple and [XRP] purchasers,” he stated.

Selig suggested that overcoming the “common enterprise” aspect in this case could prove challenging for the SEC. He hypothesized that the Second Circuit’s ruling on Ripple’s additional XRP distribution would likely also be in favor of the company.

XRP Still Not Classified as a Security

Significantly, Selig recognized that the matter of programmatic sales presents a more intricate challenge compared to other distributions. As a result, he advised that the court utilize alternative aspects of the Howey test to assess these transactions.

Moreover, Selig emphasized that, ultimately, XRP is not classified as a security in relation to programmatic sales and other forms of distribution.

“I do think XRP ultimately is still deemed in these types of transactions to be a non-security,” he noted.

Related also: XRP Fails to Reach $1 Despite Regulatory Clarity: Insights from Prominent Advocate John Deaton

SEC Adjust Its Stance on Common Enterprise

Remarkably, the regulatory agency initially argued that Ripple itself constituted the common enterprise. However, this stance was abandoned after Ripple demonstrated that XRP holders didn’t receive any benefits from the company.

Interestingly, the SEC shifted its stance, asserting that the entire XRP ecosystem, encompassing exchanges and all global XRP holders, constitutes the common enterprise. Yet, this argument didn’t hold up, leading the SEC to contend that XRP itself is the common enterprise.

Attorney Deaton highlighted the SEC’s failure to satisfy the common enterprise factor. He further suggested that even if the Second Circuit found that Judge Torres made an error in applying Howey’s third factor to each transaction, the case might be sent back for reconsideration.

In this situation, Deaton conjectured that Judge Torres might employ the common enterprise factor, which the SEC couldn’t meet, to evaluate XRP’s programmatic sales and other distributions. Despite this, he proposed that she could still arrive at the conclusion that these transactions do not meet the criteria of investment contracts.

Disclaimer: The information in this article should not be considered financial advice, and FXCryptoNews articles are intended only to provide educational and general information. Please consult with a financial advisor before making any investment decisions.

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