The SEC may appeal the court ruling in Ripple’s case after all, as other crypto firms such as Terraform Labs wish to use the legal precedent for their benefit
The U.S. Securities and Exchange Commission (SEC) says a part of the ruling in the Ripple case “creates an artificial distinction between the expectations of sophisticated institutional and retail investors,” hinting at a possible appeal. The statement came in response to the lawyers for Terraform Labs and its co-founder Do Kwon quoting the Ripple ruling as support for their motion to dismiss the regulator’s lawsuit.
Terraform Labs is the crypto company behind the failed stablecoin project TerraUSD (UST) that collapsed in May 2022. After a long investigation, the SEC accused Terraform Labs of implementing fraudulent schemes. The regulator alleged the firm offered and sold unregistered securities as part of a fraudulent scheme, ultimately wiping out at least $40 billion worth of market value.
At the same time, Terraform Labs has recently argued that Ripple ruling undermines the SEC’s argument about its failed TerraUSD stablecoin being a security since it was sold to retail investors in the same way as Ripple’s XRP.
In the SEC vs Ripple case, the judge concluded that XRP sales to institutional investors should be regarded as a securities offering, while retail trading is not the same case. However, the SEC now objects that such a ruling “improperly transforms” a decades-old Howey Test into a subjective standard.
The regulator signalled it may appeal the court’s decision and stated that the precedent only confirms Terraform’s wrongdoings. Since institutional XRP sales were acknowledged to be illegal, the SEC believes institutional buyers purchased Terraform’s crypto assets because they viewed them as an investment opportunity into the defendant’s efforts.