Written by Hazel J. Greene, Senior Analyst

The recent news of a potential appeal by the United States Securities and Exchange Commission (SEC) regarding its case against Ripple, a prominent blockchain company, has garnered attention throughout the crypto space and the wider financial world. This development came to light as the SEC disclosed its intention to appeal a court ruling in a separate lawsuit involving Korean crypto investor Do Kwon and his company Terraform Labs, who are also facing fraud charges.

On July 13, Ripple secured a significant victory when a U.S. District Court determined that the sale of XRP tokens to retail investors did not violate U.S. securities law. However, the court ruled differently in regards to sales made to institutional investors.

Shortly after this ruling, defendants in the SEC vs Terraform Labs et al. civil suit filed a motion to dismiss the charges against them on July 18. They based their arguments on Ripple’s partial win against the commission. However, on July 21, the SEC responded with a countermotion, expressing its disagreement with the Ripple court rulings and urging the dismissal of their influence on the ongoing case.

The SEC further revealed that its staff had begun discussing potential options to review the judgment, fueling speculation among investors and onlookers about the likelihood of an appeal.

To shed light on the potential outcome of this appeal, John Reed Stark, former chair of the Commission’s Office of Internet Enforcement, emphasized that the SEC stands a chance of victory at the U.S. Court of Appeals. Stark referenced a past insider trading case that unfolded between 2007 and 2009, in which the SEC initially faced a setback at the District Court level.

The case involved Oleksandr Dorozhko, who had gained unauthorized access to the computer network of IMS Health, accessing confidential information regarding the company’s earnings ahead of the official announcement. This enabled Dorozhko to generate profits of approximately $287,346 upon the release of the earnings report.

Despite the District Court ruling in Dorozhko’s favor, Stark revealed that the SEC appealed to the United States Court of Appeals for the Second Circuit. The appellate court reversed the initial ruling, highlighting that an affirmative misrepresentation could be deemed fraudulent even without a fiduciary duty violation.

While acknowledging instances where the SEC has not prevailed in Court of Appeals, such as the SEC vs. Axon Enterprise Inc. case in April 2023, Stark contended that a victory for the SEC in its ongoing lawsuit against Ripple would not be unprecedented.

The possibility of an appeal by the SEC in the case against Ripple has ignited speculation and discussions within the crypto community and beyond. Drawing upon historical precedent, former SEC chair John Reed Stark postulates that victory for the commission at the Court of Appeals cannot be ruled out. The outcome of this appeal could have significant implications for the future regulatory landscape within the crypto space.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.