The now nearly two-and-a-half-year long legal battle between Ripple Labs and the U.S. Securities and Exchange Commission (SEC) has gained a massive amount of importance this week as a result of the lawsuits against Coinbase and Binance US. As James “MetaLawMan” Murphy, a renowned advisor to innovators in the metaverse and digital assets space discusses via Twitter, the stakes have gotten even higher for the SEC versus Ripple.
The reason is Judge Analisa Torres’ expected ruling on XRP’s secondary market transactions. If Torres rules that XRP tokens traded on secondary markets are not securities, it would undermine much of the basis for the SEC’s case against Coinbase and much of the Binance case, Murphy claims.
In its lawsuit against Coinbase, the SEC alleges that 13 tokens traded on Coinbase are securities. Among those named are Solana (SOL), Cardano (ADA), Polygon (MATIC) and Filecoin (FIL). Based on these token listings, Coinbase is supposedly operating an unregistered securities exchange, a broker-dealer, and a clearing broker.
Is The Ripple Case Becoming The Bellwether?
However, if these 13 tokens are not classified as securities, the SEC has no case. As Murphy clarifies, while a ruling by Judge Torres is not “binding precedent” in other cases, it would still be extremely important for the entire crypto industry. (Although only appellate and Supreme Court decisions are “binding” on lower courts).
Nevertheless, a defeat of the SEC against Ripple on this point could be highly significant. Judge Jennifer Rearden, who has been assigned to the Coinbase case, is brand new. As Bitcoinist reported yesterday, she has been an active judge for less than a year. Moreover, Judge Rearden works in the same lower Manhattan court as Judge Torres. So conversations between the two judges are very likely.
So while a Torres decision in the Ripple and XRP case would not be “binding precedent,” Murphy believes Rearden will pay very close attention to Judge Torres’ legal reasoning in her decision on the Coinbase lawsuit.
And I believe Judge Rearden would follow that same reasoning as she analyzes whether the 13 tokens cited in the Coinbase complaint are securities.
However, as Murphy warns, this dynamic “works both ways, of course.” If Judge Torres rules that XRP tokens traded on secondary markets are securities, the SEC will be presented with an extremely strong argument that Coinbase and Binance would be hard-pressed to refute.
Moreover, the Binance case is more complicated than the Coinbase case because the exchange issued its own token (BNB). That’s why Binance still has to hope for another winning argument from Ripple: Judge Torres must rule that Ripple’s own issuance and sale of XRP is not a securities offering.
Another caveat from Murphy concerns Coinbase’s “Staking-as-a-Service.” Rearden could argue that the staking is a securities offering, even though the secondary market transaction of the 13 tokens doesn’t in itself warrant a securities definition. “But the rest of the SEC’s case would be gutted,” Murphy says.
Ultimately, however, the attorney also cautions that judges within the same court don’t always agree. “But I believe Judge Rearden (with only 6 months on the job) is not likely to disagree with the legal reasoning of her experienced fellow Judge in such an enormously consequential case.”
Additionally, as Bitcoinist reported, the LBRY vs. SEC case could become another bellwether of litigation. XRP community attorney John E. Deaton, as amicus, managed to elicit “live and on tape” from the SEC that it does not consider secondary sales of the LBC token to be securities. With that in mind, the SEC has yet to prove whether its baseless claims will withstand judicial scrutiny.
At press time, the XRP price traded at $0.5280, facing key resistance at $0.5376 in the 1-day chart.
Featured image from CNBC, chart from TradingView.com