The US Supreme Court’s Howey case established that,
“An investment contract exists when there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
Investors acquiring XRP for ODL purposes cannot expect profits and do not meet the threshold for an investment contract.
The Ripple arguments suggest the lack of post-complaint breaches of US securities laws. Nevertheless, the SEC will have the final say with its reply brief.
SEC Plans to Appeal and Recent Crypto Court Rulings
While the US courts decide the penalty, investors may begin considering the prospects of an appeal.
In October, Judge Torres rejected an SEC Motion to file interlocutory appeal. Since the ruling, the SEC has expedited the Ripple case to file an appeal against the Programmatic Sales of XRP ruling. After the court denied the SEC motion, the SEC dropped the charges against Ripple co-founder Chris Larsen and CEO Brad Garlinghouse to proceed to remedies-related discovery.
Investors face increasing uncertainty about the outcome of an appeal. In December, Judge Rakoff ruled that TerraformLabs and Do Kwon breached US securities laws by failing to register Luna and TerraUSD. More recently, Judge Failla denied, in large part, the Coinbase (COIN) Motion to Dismiss (MTD).