This Is The Biggest Danger For Ripple In Its Legal Battle Against The SEC, Attorney Says

Attorney John E. Deaton, who is representing 75,000 XRP investors in the legal battle between Ripple and the U.S. Securities and Exchange Commission (SEC), has drawn attention to the biggest danger for Ripple.

Deaton warned in a series of tweets that Judge Torres’ decision in the District Court will have a huge impact in practical and political terms.

The attorney was referring to an interview with Nick Burrafato, director of member investment at Linqto, with this comment. About two weeks ago, the latter spoke at the Ripple Swell conference with CEO Brad Garlinghouse and General Counsel Stuart Alderoty, among others.

Will The District Court Ruling Matter At All To Ripple?

Burrafato said everyone will overreact as a result of the ruling by the district court, whether it’s a win or a loss.

Because what this judge has to say about it is really not going to be that important. There are two more layers of appeals. What an appellate court says about this and eventually the supreme court. That’s what will matter.

Remarkably, this contradicts a quote from Alderoty that Burrafato elicited from the Ripple legal counsel at the Swell conference. Alderoty is reported to have said, “When it’s over, it’s over.”

This is not what @Nick_Burrafato was told by @s_alderoty himself at @ripple Swell. pic.twitter.com/Ib9t9PA2eT

— Digital Asset Investor (@digitalassetbuy) December 5, 2022

At the moment, there are no official statements on whether Ripple or the SEC will go to a higher court if it loses. However, given that Ripple had repeatedly emphasized its willingness to fight, this certainly seems like a possibility.

Attorney Deaton Warns

Deaton explained that an appellate decision has much greater significance than a district judge’s ruling, and expressed his agreement with Burrafato on this point.

“That’s why I said the LBRY decision wasn’t as big of a deal as some people claimed. He’s looking at it from a legal precedent standpoint,” Deaton said.

Still, the district court’s decision poses a massive risk. If Judge Torres rules in favor of the SEC, Gary Gensler’s “regulation by enforcement” campaign would gain credibility and momentum.

If Ripple wins outright and the judge criticizes the SEC for pursuing the implausible theory that the XRP token was a security from scratch, on the other hand, Gensler’s campaign against the crypto industry could be stopped.

However, as Deaton continued to state, there could also be a split decision:

Of course it’s possible that Judge Torres could split the proverbial baby and rule that Ripple, at some point, “offered” an unregistered security but the token itself is not, nor are secondary market sales independent of Ripple.

This would also reinforce Gensler’s policy.

A Precedent For The Crypto Industry

As Bitcoinist reported yesterday, both parties filed their reply briefs for summary judgment a few days ago.

Ripple argued in its brief that the SEC is seeking a ruling that XRP is an investment contract, but “without a contract, without investor rights, and without issuer obligations.”

The SEC, on the other hand, claims that Ripple is relying on a “contrived” test that ignores U.S. securities law.

A key point of contention in the case is whether the Howey test can be applied to cryptocurrencies. The U.S. Supreme Court defined an investment contract, and thus the concept of a security, in the 1946 case SEC v. Howey Co.

So time will have to tell if Ripple may have to go to the Supreme Court to set a precedent and litigate a “Ripple test” for the crypto industry.

However, if the District Court judge allows the SEC to walk away a winner in the lawsuit, it would be potentially fatal for Ripple and the crypto industry. A decision by the higher courts would likely take even longer than the two-year legal battle in the district court.

Currently, a decision by the district court is hoped for in the first half of 2023.

At press time, the XRP price was trading $0.3822, fighting to establish another higher low in the 4-hour chart.

XRP price, 4-hour chart. Source TradingView