John E. Deaton, a vocal advocate of the XRP cryptocurrency, recently downplayed expectations of the US SEC pursuing an appeal in its case with Ripple Labs. Deaton’s comments were followed by a moderate decline in XRP price, demonstrating uncertainty among investors.
Secondary XRP Sales Ruling Set for October 7
The Ripple vs SEC lawsuit has entered its last stages as we draw closer to October 7, the final date for the SEC to file an appeal. As a reminder, Ripple secured a partial victory against the SEC, but the regulator has until October 7 to appeal the decision.
In July 2023, Judge Torres ruled that the sales of XRP on exchanges to retail investors did not constitute securities transactions. However, Judge Torres determined that XRP sales to institutional investors violated federal securities laws. Thus, she ordered Ripple to pay $125 million in fines.
While the amount may seem huge, it represents a 94% discount on the SEC’s initial $2 billion request. Many market participants think the Judge’s ruling will positively impact other ongoing actions in the industry. Some others, however, speculate that the SEC will file an appeal against Ripple to contend with the Judge’s decision.
Fox Business reporter Eleanor Terrett, citing a former SEC attorney, said the SEC would “probably” appeal Judge Torres’s July 2023 ruling concerning the XRP programmatic sales. The attorney allegedly stated,
“Everyone over there [at the SEC] truly believes that the decision is wrong, that it’s not good law, and should be appealed.”
John Deaton’s Analysis of What to Expect
In response to Eleanor’s post, John Deaton outlined several reasons why a potential SEC appeal is very unlikely. He pointed out that Judge Torres was very fact-specific, relying only on submitted affidavits from XRP holders.
Deaton added that the regulatory agency failed to establish a “common enterprise,” the second prong criteria of the Howey Test. Even if an appeal court goes against Judge Torres’s ruling that XRP is an investment contract during secondary sales, Deaton says the SEC will still not win the case. This is because the facts must meet all the Howey factors.
The Howey Test specifies four requirements for an investment contract to qualify as a security. First, there needs to be money investment. Secondly, the investment needs to be made in a common enterprise. Third, earnings ought to be an expectation of profits. Lastly, these profits should result from the efforts of others.
In the Ripple case, Judge Torres’s main conclusion depended on the third criterion. In particular, the court decided that XRP’s selling on exchanges did not satisfy the expectation of rewards derived from the labor of others.
“If Judge Torres did rule against Ripple, Ripple could then appeal,” Deaton emphasized.
XRP Price Reacts
The uncertainty surrounding the Ripple v. SEC case reverberated in the XRP price. The asset’s balance is around $0.59, roughly the same as a week ago. In the last 24 hours, XRP’s price dropped by 0.16%.
However, the trading volume surged 14.2% on the daily time frame to $1.2 billion. The spike in trading volume aligns with analysts’ forecast that XRP is on the verge of making a major price move soon. However, there are differing sentiments about how it will go in the coming weeks.
