SEC Requests Court to Support Ripple Labs’ Appeal, Citing Complex Legal Challenges

The United States Securities and Exchange Commission (SEC) has taken a significant step in the ongoing Ripple Labs lawsuit, filing a request with the court to grant its motion for an appeal. The lawsuit centers around whether the XRP token should be classified as a security when sold to retail investors.

In its filing, the SEC cited what it described as “knotty legal problems” associated with the court’s application of the law, specifically referencing the Howey test. The agency argued that these complexities warrant a review of the case.

According to a filing made on September 8, the SEC called upon the U.S. District Court for the Southern District of New York to not only grant its motion for an interlocutory appeal but also to “stay further proceedings until the resolution of that appeal.”

The SEC’s argument for immediate certification of appellate review is based on the belief that the issues raised by the court’s order on summary judgment contain precisely the kind of legal intricacies that led Congress to allow for interlocutory review.

This legal maneuver comes after Judge Analisa Torres’s ruling in July, which stated that XRP does not generally qualify as a security under SEC guidelines, especially when distributed through programmatic sales, such as those on retail exchanges.

In its latest filing, the SEC contended that the court’s decisions regarding programmatic sales and other distribution methods pose significant “legal questions.” These questions, according to the SEC, warrant the approval of an interlocutory appeal.

One of the central issues highlighted by the SEC is the uncertainty surrounding whether certain cryptocurrency assets should be classified as investment contracts under the Howey test. The agency noted that within the same district, two different opinions have been reached on these matters, and numerous courts across the country are grappling with similar questions.

The SEC acknowledged that interlocutory appeal should be the exception rather than the rule but argued that this case is unique because even the defendants themselves have recognized the industry-wide significance and special consequence of the issues at hand.

These recent developments seem to contrast with previous statements made by the SEC and its Chair, Gary Gensler, who had previously expressed that the SEC’s existing guidelines adequately covered the cryptocurrency market. Gensler’s perspective had been that most cryptocurrencies could be classified as securities.

Ripple’s chief legal officer, Stuart Alderoty, criticized the SEC’s filing, labeling it as “hypocritical.” He pointed to Chairman Gensler’s past assertions that the rules were clear and must be obeyed, noting that the SEC’s sudden urgency to appeal raised questions.

Paul Grewal, the chief legal officer of Coinbase, also raised concerns about how crypto firms could operate with “fair notice” if there were unresolved legal questions that required court consideration.

The SEC initially moved to appeal and stay Judge Torres’s decision in August, claiming that there were “substantial ground for differences of opinion.” In response, Ripple Labs filed a memorandum of law on September 1, arguing that the SEC lacked substantial grounds for an appeal.

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