The ongoing legal battle between Ripple Labs Inc. and the Securities and Exchange Commission (SEC) could be headed to the Supreme court in the land, according to former SEC litigator Linda Steward. This prediction adds fuel to the fire of a legal clash that hinges on a critical question: what constitutes a cryptocurrency as a security?
Steward’s forecast aligns with Ripple CEO Brad Garlinghouse’s indication of battling the case until its conclusion, finding hope in recent legal advancements. Stuart Alderoty, Ripple’s Chief Legal Officer, views the Supreme Court’s recent decisions against the SEC as a favorable development for their case in the highest court.
The crux of the issue lies in how the SEC views Ripple’s XRP token. While the SEC considers the sale and offering of XRP tokens to be securities offerings, it doesn’t classify the underlying XRP asset itself as a security. This distinction is crucial for both parties.
In July 2023, Ripple had a partial victory in the case, with the court ruling that secondary sales of XRP didn’t qualify as security offerings. However, despite this win, the company still confronts substantial fines from the SEC, signaling that Ripple’s path to victory isn’t without obstacles. Additionally, the SEC is expected to challenge this ruling.
Adding complexity to the legal scenario is the recent lawsuit involving Coinbase, a case that Steward speculates could eventually make its way to the Supreme Court. Steward, who recently transitioned to White & Case following her departure from the SEC, highlighted her previous involvement in lawsuits against companies such as Ripple and FTX. Intriguingly, her departure coincided with the SEC’s lawsuit against Coinbase, which resulted in a district judge ruling in favor of the SEC.
Moving beyond the Ripple lawsuit, a recent setback for the SEC in the Aron Govil (Executive Director of Cemtrex) case provides a glimmer of hope for Ripple. The Second Circuit Court of Appeals turned down the SEC’s appeal, a move seen positively by pro-XRP lawyer Bill Morgan, who sees it as a favorable turn for Ripple. Morgan emphasizes the importance of this decision, which clarifies that the SEC cannot demand disgorgement (return of profits) if the buyer doesn’t suffer any financial harm. This has fueled optimism among Ripple supporters, who see the Govil ruling as potentially impacting the broader Ripple vs. SEC case.
Steward’s prediction emerged during a debate with blockchain lawyers at a recent Columbia Business School event. She elaborated on the SEC’s stance, highlighting the distinction between XRP token sales and the underlying asset. This distinction underscores the complex legal arguments at play.
While the final destination of this legal battle remains uncertain, one thing is clear: both Ripple and the SEC are digging in for a long fight. The outcome could have significant implications for the entire cryptocurrency industry, with potential ramifications for how regulators define and approach digital assets.
Also Read: SEC Demands $1.95 Billion Fees and Penalties From Ripple, Raising Fears of XRP Sell-Off