CryptoLaw founder John Deaton, who is also XRP holders' attorney, hints at what might happen if the SEC successfully appeals Judge Torres ruling.
READ FOOTNOTE 13 PEOPLE:— John E Deaton (@JohnEDeaton1) July 22, 2023
"The Court holds only that a common enterprise existed between Ripple and the Institutional Buyers. The Court does not reach the question of whether the common enterprise extends to encompass "other XP holders." Defendants Garlinghouse and Larsen, the… https://t.co/uQO0q4M6sT pic.twitter.com/VwX4jyChSf
In a new filing in its case against Terra co-founder Do Kwon, the U.S. Securities and Exchange Commission (SEC) stated it was considering an appeal in the Ripple case.
Earlier, Deaton highlighted that the biggest hurdle the SEC might face in its appeal against the Ripple ruling might be the common enterprise factor, as the court only holds that a common enterprise exists between Ripple and institutional buyers.
Deaton, in a new tweet, noted that the common enterprise factor is more difficult for the SEC to meet than the third factor of the Howey test.
He continues by saying that if the SEC gets successful in its appeal, all that happens is a remand, and Judge Torres may decide the SEC failed to establish the existence of a common enterprise between Ripple and XRP holders in the secondary market.
Deaton recounts that the SEC flip-flopped its common enterprise theory on three occasions before finally settling on the argument that XRP itself represented the common enterprise.
The CryptoLaw founder highlighted that the SEC's theory in the Ripple case was circular and conclusory, and that is why it lost.
SEC brings up Ripple ruling in Terra's Do Kwon case
The SEC, in a fresh filing in its lawsuit against crypto company Terraform Labs and its co-founder Do Kwon, alleged the judge erred in her ruling in the Ripple case and indicated that it was exploring an appeal.
The decision in the Ripple case found that while selling XRP tokens directly to institutional investors violated the SEC's rules, selling XRP to retail investors on exchanges did not. This was largely regarded as a triumph for the cryptocurrency industry.
The SEC said the second part "creates an artificial distinction between the expectations of sophisticated institutional and retail investors."
The SEC's recent comments sparked a reaction from the XRP community.
Fred Rispoli, an attorney, gives a likely timeline on which an appeal gets resolved. He says that the fastest appeal is by Rule 54(b) judgment, which is likely a 1.5-year process, but it is unlikely that this relief is granted. The next fastest, he says, is an interlocutory appeal, which, if granted, may resolve likely in early 2025.
Rispoli added that if the SEC appeals after the final judgment, the appeal may not get decided until late 2025 or early 2026 since a trial may not be likely until early next year.