A former official at the U.S. Securities and Exchange Commission (SEC) has cautioned that the legal predicament for Ripple Labs is about to get worse after a recent high-stakes court decision.
John Reed Stark cited the recent judgment made by the Southern District of New York District Judge, Jed Rakoff, which denied Terraform Labs’ motion to dismiss the securities fraud lawsuit lodged against it by the SEC.
Ripple Ruling In Trouble?
The position of Ripple’s XRP in the market as a crypto and not a security token has once again come into question following Judge Jed Rakoff’s recent ruling.
The ruling indicates that the SEC can proceed with its case against Terraform Labs and its founder, Do Kwon, rejecting defense arguments that the U.S. regulator lacked jurisdiction and that Terraform’s algorithmic stablecoin TerraUSD did not qualify as an unregistered security.
Critically, Rakoff refused to extend reasoning from a July court decision in favor of Ripple to the Terraform case.
In the Ripple lawsuit, a different judge — Judge Analisa Torres — determined that Ripple’s XRP sales to retail investors did not break federal securities laws because those buyers bought on secondary markets. But Rakoff stated that this “distinction between purchasers” does not apply under the Howey test that specifies whether crypto assets are securities.
Former SEC Chair of the Office of Internet Enforcement, John Reed Stark, suggested that Judge Rakoff’s decision represents a significant victory for the SEC and could have severe repercussions on the ongoing Ripple case as the agency could potentially leverage this precedent to appeal against the landmark XRP ruling.
Ripple Legal Chief: Federal Judge’s Ruling Has No Impact On XRP
Ripple’s chief legal officer Stuart Alderoty swiftly took to X to give the XRP community the much-needed assurance following the comments by the former SEC official.
Alderoty noted that the Terraform Labs decision has no bearing on Ripple’s ruling that XRP is not a security. He argued that the Terra case is only just commencing and the presiding judge has to accept everything the SEC avers as true. In contrast, Ripple’s judgment came after a full factual record created over two years was presented to the court.
Ripple’s chief technology officer David Schwartz also shared his opinion, positing that the decision in Terraform’s case was based on the “unusual properties” of that particular case and not on how crypto assets normally work.
Both Alderoty and Schwartz emphasized that although Judge Rakoff rejected the Ripple verdict, the heart of the disagreement revolved around the specific facts of each lawsuit and not a sweeping judgment on crypto assets.