Mishal Ali

In a recent blog post titled “The Irony of Interlocutory Appeal,” prominent pro-crypto lawyer John E. Deaton has taken a closer look at the Securities and Exchange Commission’s (SEC) strategies in its ongoing legal dispute with Ripple. 

Deaton’s analysis sheds light on the SEC’s efforts to challenge Judge Torres’ ruling concerning Ripple’s XRP sales and the Howey test, a critical factor in determining whether XRP qualifies as a security.

Following Ripple’s legal victory in July, the SEC swiftly moved to file an appeal that aligned with its own narrative. In August, the SEC formally expressed its intent to pursue an interlocutory appeal in response to Judge Torres’ ruling that the XRP sales did not meet the Howey test criteria.

Deaton had previously anticipated that Judge Torres would grant the motion for an interlocutory appeal, and indeed, his prediction proved accurate. This decision provides Judge Torres with an opportunity to clarify her reasoning behind the case and respond to comments made by Judge Jed Rakoff in a similar case involving the SEC v. Terraform Labs.

SEC’s Concerns About Ripple’s Ruling

The SEC has raised concerns that Judge Torres’ ruling may have broader implications for their other ongoing lawsuits. However, Deaton views this argument as one of the SEC’s weakest points.

With Judge Torres’ approval for an interlocutory appeal, she can now distinguish her ruling in the Ripple case from the SEC’s interpretation of it. Notably, the SEC categorized the various XRP sales, not Judge Torres.

Recently, the SEC filed a reply memorandum supporting its motion to certify the interlocutory appeal, asserting that it seeks an efficient resolution of the case, unlike Ripple, which allegedly aims to prolong the litigation process, a claim that Deaton dismisses as laughable.

Deaton argues that the SEC’s request for a stay on all proceedings would inherently extend the litigation timeline. Additionally, even if the 2nd Circuit were to rule in favor of the SEC, the case would still return to Judge Torres, leading to further delays.

Deaton ultimately believes that Judge Torres would likely reach the same conclusion even after a potential SEC interlocutory appeal. In the event of an unfavorable ruling for the SEC at the 2nd Circuit, the case would go back to Judge Torres for trial, followed by the standard appeals process.

In Deaton’s view, the SEC’s claim of seeking a swifter resolution than Ripple is contradicted by its actions, as it simultaneously requests an early appeal and a stay.

He characterizes these maneuvers as desperate tactics by a regulator that lost the initial case, highlighting the irony inherent in the motion for interlocutory appeal—the SEC’s attempt to regulate through the courts now appears to be causing delays in litigation across the board.

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