Aug 10, 2023

The U.S. Securities and Exchange Commission (SEC) said in a court filing that the regulator will submit an "interlocutory appeal" of Judge Analisa Torres' ruling on Ripple's programmatic sales of XRP.

Video transcript

Last month, there was a big judgment from a federal judge saying that certain sales of XRP satisfied securities um transactions, others did not. And now the SEC is appealing or is asking for permission to appeal that judgment in a major case that has been closely watched in the crypto world. When this judgment was first issued by federal judge uh ELISA Torres, it was seen as a partial victory for ripple and a partial victory for the industry writ large. So clearly, the SEC is advancing its case that maybe those programmatic sales also qualify as securities transactions and they're asking for a certain type of appeal on the matter, Jen, I'm gonna throw it to you. Everyone was super duper bullish about this uh decision from judge Torres and now they may have to take it back to appeal. How does that sort of change our understanding of what happened here? This is another story that just will keep going on, I think until the end of time, it feels like we've been following the ripple case. It did feel like there was like a moment where this entire industry took a breath and thought, wow, this this is a small win for us. It's a small one. It gives us a little bit of clarity, a little bit of direction we of course have seen since then. Coinbase has referenced this partial win in some of their filings against the S CC. And now I just feel down in the dumps again. Of course, there's still a trial pending here and now we have the SEC filing this appeal, which I think everyone expected. The SEC said that they were going to file the appeal, the part that I'm going to watch and that I think is kind of interesting is Judge Torres said Ripple did not break the law when the Xrp Token was sold on public exchanges because purchasers had no reasonable expectation of profit based on ripple's efforts. I just wonder if we're going to see ripple's efforts come to light here compared to the price of the Xrp Token. Ripple has made a lot of announcements about acquisitions, new projects, new products. And if that is going to be some swaying information in this case, because I think that it's not a far cry to draw a parallel between ripple's new project and the price of the Xrp Token. Even though Ripple has definitely distanced themselves from that narrative. Will, what do you think? Yeah. Classic Ripple. It's not our token. We just, we just found it out there. I don't know it was in a wild somehow. So go back and one is a Cryptocurrency. I have been told many times. It's true. You'll be told time and time again on Twitter. I don't know how they relate, but somehow, uh so go back, going back to like the, the lawsuit here in the case between the sec and Ripple labs. You know, the programmatic selling part that Zach brought up. This is the thing that, like, confused a lot of people and there's definitely a lot of lawyer opinions on this, including some op EDS are written on coin desk. So definitely go check those out for an expert's opinion. From a layman's opinion is looking at this. It seemed a little odd that you could have this broken up into two different tranches, right where we could sell to V CS, we could sell it to banks, we could sell to institutions and that's not ok. But if we sell it on to an ex change where there's just retail clients and they're not really having an investment contract, they're just purchasing, I guess, like a commodity in this case or something like that, then it's ok. And it just didn't make sense to a lot of people when they first saw this, I only saw a few lawyers looking at them and like, oh yeah, that checks out. I think it also if it stands sort of cuts the heart of how a lot of crypto lab companies or foundations do their sales of assets when they create them or quote unquote assets. Oftentimes we see private rounds where initially there's like a pre mine created and then they divvy up that pre mine to investors to insiders to the foundation to the early team. And then they do a huge sale to the retail either through like an airdrop or ion exchange elsewhere uh later on. So let's take a world coin, for example, they did this right where they gave some to early investors, gave some to the team and then they gave a ton to market makers to be able to keep like the price of the token pretty steady in under like this ruling from this judge, a lot of that would be broken, right? Like would you be able to give a token to market makers to even loan it out so you could have a price? I don't know if you can do that anymore under this. Uh it seems like you could only really sell it to retail and that seems odd to me, it seems like it's going to change and I don't think it's a surprise to anyone to see the sec go against this or at least try to challenge it. Uh the outcomes from it could have huge repercussions for how everyone is looking at the token market. Zach. Yeah, my understanding is that a lot of these sales sort of date back before established best practices were uh were set up, right? For a lot of these uh token distributions, right? So this is this is from an era in which a lot of the um sort of more uh regulatory Kosher practices were being uh embraced so that I think a lot of the space has evolved. And I think there is a question as to whether or not this will impact sort of the current understanding of how tokens get distributed to early investors. I think the SEC had to appeal this one because will, as you mentioned, it really undercuts Gary Gusler argument that almost everything except for Bitcoin basically is a digital asset security. Now, I mean, I think my understanding of the ruling was that it's not really the securities that it's not really the the assets themselves, it's which type of transactions they're involved in. And that was sort of the fine line that Judge Torres was trying to distinguish here, right? Um You know, similarly to how in the, how we test it stemmed over an orange grove in Florida, right? The oranges themselves aren't necessarily securities, but if they are involved in a securities transaction, then they meet certain requirements in terms of disclosure and other things that need to happen. Right? So the understanding, at least on the industry side was, hey, the assets are just like the oranges, they aren't inherently securities, but if they're in a securities transaction, then certain rules will apply. And that's what George Torres was trying to articulate whereas has been trying to say these things are securities, they look like a security, they walk like a security, they quack like a duck. I don't know what I'm saying anymore, but he was saying that that is always the case with these things that they are by nature of their existence, our, our securities. Whereas the judge is saying, no, no, no, we need to look at the specifics of the transactions in which they're involved. So a lot of people, I think within the industry specifically saw that as a pretty reasonable explanation of how it can be both at the same time, a security and not a security. And now I think the SEC is at least taking another shot at advancing their case uh here such that other claims relating to other assets um can be supported. But yeah, I mean, this is, I think, I think a lot of lawyers, this was definitely the thing where a lot of lawyers on crypto Twitter were sort of uh placing their bets in terms of what would happen. Some were more cautious that an appeal would, would occur. Others were indicating that there would likely not be an appeal here. Now, we see with this particular type of appeal that the SEC is gonna have this one looked at again under video review, but who knows?

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