Another setback to the Securities and Exchange Commission’s efforts to control the market came when a US judge rejected the agency’s request to appeal the decision that digital tokens traded to the general public are not securities.
In a dispute involving Ripple Labs and its XRP token, federal judge Analisa Torres in the Southern District of New York rendered a judgement on Wednesday, stating that there was no “substantial ground for difference of opinion” regarding her conclusions.
Torres was the judge who decided in July that selling XRP to institutional investors was the only time it qualified as a security. She claimed in July that the selling of XRP to retail clients on public exchanges complied with federal securities regulations.
Her initial decision was hailed as a victory for the cryptocurrency community, and several members of the sector also applauded her decision on Wednesday to reject the SEC’s appeal.
According to Daniel Stabile, a lawyer at the law firm Winston & Strawn, which represents both Ripple Labs and cryptocurrency exchange Binance in other legal disputes, “this victory is another example of a court halting the SEC’s efforts of regulation by enforcement” against crypto businesses.
The fifth-largest cryptocurrency coin, XRP (XRP-USD), which was initially developed and released by Ripple Labs, increased 5% on Tuesday.
Coinbase Global (COIN), Microstrategy (MSTR), and the bitcoin mining companies Marathon Digital (MARA) and Riot Platforms, Inc. (RIOT) were among the cryptocurrency stocks that climbed on Wednesday but lost those gains by 11 a.m. ET.
The SEC and its chair Gary Gensler have claimed repeatedly that some cryptocurrencies are securities and should therefore be regulated by the US government. They have used this argument as the foundation for various legal actions against significant market participants.
Since the beginning of January, it has brought a number of enforcement cases against cryptocurrency investors and companies. Cases against Coinbase and Binance, the largest cryptocurrency exchange in the world, are included.
When a federal appeals court sided with an asset manager who wanted to start the first bitcoin exchange-traded fund against the SEC’s objections, it dealt another setback to the SEC’s effort.
Judges deemed the SEC’s justification for turning down Grayscale Investments’ request to be “arbitrary and capricious.”
For that case, the agency still has two weeks to ask for a rehearing.
The SEC has achieved some success. In contrast to Torres’ earlier decision, another federal judge, Jed Rakoff, stated on July 31 that digital currencies can be treated as securities when offered for sale to the general public. His case includes the Terra USD token from Terraform Labs.
On Wednesday, Torres said that Rakoff’s conclusion was not at odds with hers. She has scheduled the Ripple Labs case trial for April 23 of the next year.
Now, the regulator has two options: either reach a settlement with Ripple before then, or file another appeal move following the trial.