The legal battle over XRP, Ripple’s native cryptocurrency, has been closely watched by the crypto community and financial regulators alike. In a landmark decision, Judge Analisa Torres ruled that XRP is not a security, particularly regarding its secondary market sales. This ruling was a significant victory for Ripple, as it challenged the SEC’s broad assertions about the classification of digital assets.

Alderoty’s confidence in the ruling’s durability comes from the assertion that the legal framework set by Judge Torres is solid. According to him, the decision that XRP itself is not a security and that its secondary market transactions do not constitute investment contracts is firmly grounded in law.

The Chances of an SEC Appeal

In his discussion with Verret, Alderoty addressed the possibility of the SEC appealing the decision. The SEC’s interest in appealing stems from its ongoing efforts to assert broader regulatory control over digital assets. Despite this, Alderoty emphasized that the likelihood of overturning Judge Torres’ decision is slim.

One of the key points Alderoty made is that the Second Circuit Court of Appeals, which would hear any potential appeal, rarely reverses decisions from lower courts. He cited statistics showing that reversals occur in less than 10% of cases, providing a solid foundation for his confidence.

“The careful treatment of the issues by Judge Torres gives us a strong position,” Alderoty remarked. “We are very confident that the SEC won’t be successful in overturning the court’s decision.”

Potential Supreme Court Challenge

Alderoty’s confidence extends to the possibility of the SEC challenging the ruling in the Supreme Court. He believes that even if the case were to reach the highest court in the land, the chances of overturning Judge Torres’ ruling remain minimal. His argument hinges on the assertion that the SEC’s litigation strategies have been ineffective so far and that the Supreme Court is unlikely to reverse the lower court’s decision.

Advising Against an Appeal

When asked about the SEC’s potential next steps, Alderoty advised the regulatory agency to reconsider its appeal strategy. He argued that continuing the litigation would not serve the SEC’s core mission of investor protection, especially given that the Ripple case lacks elements such as fraud or direct harm to investors.

“The case does not advance the SEC’s core mission,” Alderoty stated. “There are no allegations of fraud, no victims, and no harm. The court criticized the SEC for its litigation tactics rather than a faithful application of the law.”

Ripple’s Legal Strategy and the SEC’s Response

Ripple’s legal team has consistently maintained that the SEC’s attempts to expand securities law through this case are misguided. Alderoty pointed out that Judge Torres effectively dismissed the SEC’s attempt to broaden the scope of securities regulation in this instance.

“The SEC’s litigation tactics have not been productive,” Alderoty noted. “The court has repeatedly rejected their attempts to stretch the securities law beyond its intended scope.”

Interestingly, the SEC’s response to Judge Torres’ decision has been somewhat subdued. While the SEC sought an interlocutory appeal to challenge aspects of the ruling related to XRP’s programmatic sales and distribution, it did not directly contest the court’s declaration of XRP as a non-security. This move was ultimately unsuccessful, with the court denying the SEC’s request for an interlocutory appeal.

Future Implications for Ripple and the SEC

Should the SEC decide to proceed with a new appeal, it remains uncertain whether they will directly target the court’s finding that XRP is not a security. The ongoing legal skirmish between Ripple and the SEC is a critical juncture for the broader cryptocurrency regulatory landscape, influencing how digital assets are treated under U.S. law.

Ripple’s victory in this case represents a significant shift in the regulatory environment for cryptocurrencies, setting a precedent for how similar assets might be classified in the future. The SEC’s response and any further legal actions will likely shape the future of cryptocurrency regulation and the broader market’s reaction.

In summary, Ripple’s CLO, Stuart Alderoty, is optimistic that Judge Torres’ ruling on XRP will stand firm against any potential appeals by the SEC. The confidence in the durability of the ruling reflects a broader belief in the strength of the legal arguments presented and the current regulatory climate surrounding digital assets. As the situation evolves, the outcome of this case will continue to be a focal point for discussions on cryptocurrency regulation and the future of digital asset classification.