Attorney Selig says that even if there is an expectation of profit on XRP programmatic sales, there is still no common relationship between Ripple and purchasers.
Cryptocurrency legal experts have been reacting to the SEC’s request to file an interlocutory appeal against Ripple’s victory.
Earlier this week, the SEC requested permission to appeal Judge Analisa Torres’ ruling on Ripple’s programmatic sale of XRP and other token distribution.
Recall that Judge Torres ruled that both transactions do not constitute investment contracts. Notably, she reached the verdict after applying the third prong of the Howey test: “a reasonable expectation of profits to be derived from the efforts of others.”
Per the ruling, Judge Torres said retail buyers of XRP did not expect to make gains directly from Ripple’s efforts. Hence, she declared programmatic sales of XRP on exchanges as non-securities.
However, the SEC has expressed dissatisfaction over the decision and recently requested permission to appeal.
Common Enterprise Factor Poses a Problem For SEC
Following the move, top legal experts have been speculating about the possible outcome of the appeal if granted.
Michael Selig, counsel at law firm Willkie Farr & Gallagher LLP, joined the debate yesterday in an interview with CoinDesk.
Attorney Selig speculated that the common enterprise factor of Howey would be a problem for the SEC in its attempt to overturn Judge Torres’ decision on programmatic sales, irrespective of whether investors expected to make gains directly from Ripple’s effort.
“A lot of us have really been focused on the common enterprise prong for these programmatic sales. Even if there is a reasonable expectation of profits based on the efforts of others, there is no common relationship between Ripple and [XRP] purchasers,” he said.
“There’s no common relationship between Ripple and the purchasers,” @WillkieFarr’s @MikeSeligEsq says.
“I do think XRP ultimately is still deemed in these types of transactions to be a non-security.”
Watch more, presented by @trondao: https://t.co/pBdWqHlGrU pic.twitter.com/4q2wNiSfoz
— CoinDesk (@CoinDesk) August 10, 2023
Per Selig, it would be difficult for the SEC to get past the common enterprise factor in the case. He speculated that the Second Circuit’s decision on Ripple’s other XRP distribution would also favor the company.
XRP Still Deemed A Non-Security
Notably, he acknowledged that the programmatic sales issue is trickier than other distributions. Consequently, the lawyer recommended that the court apply other Howey prongs to the transactions.
Furthermore, Selig added that XRP is ultimately not deemed a security in programmatic sales and other distribution.
“I do think XRP ultimately is still deemed in these types of transactions to be a non-security,” he added.
SEC Failed to Satisfy Common Enterprise
Meanwhile, several legal experts have commented on the common enterprise prong of Howey regarding the SEC v. Ripple lawsuit. Crypto-Law.US founder Attorney John Deaton reiterated that the SEC failed to satisfy the common enterprise factor.
Notably, the regulatory agency first argued that Ripple is the common enterprise. However, it abandoned the argument after Ripple proved that XRP holders did not receive any interest from the company.
Interestingly, the agency shifted its stance, alleging that the entire XRP ecosystem, including exchanges and all XRP holders globally, is the common enterprise. The argument did not stand, prompting the SEC to allege that XRP itself is the common enterprise.
Attorney Deaton noted that the SEC failed to satisfy the common enterprise factor. He added that the case would be remanded even if the Second Circuit found that Judge Torres erred in applying Howey’s third factor to each transaction.
In this scenario, he speculated that Judge Torres would apply the common enterprise factor, which the SEC failed to satisfy, to XRP’s programmatic sales and other distributions, and still find that they do not constitute investment contracts.
