Ripple filed its remedies-related opposition brief in April 2024, pursuing a $10 million penalty. Importantly, Ripple stated that post-complaint activity did not breach US securities laws. According to the filing, XRP sales to institutional investors included:
- Sales to accredited investors, exempt from US securities laws.
- Sales via On-Demand Liquidity (ODL) contracts. ODL contracts prevent profits or losses.
XRP sales via ODL contracts cannot meet the third prong of the Howey test. The third prong of the Howey test is the expectation of profits derived from the efforts of others.
The SEC might consider Ripple’s post-complaint activity and Judge Torres’s possible ruling. A penalty closer to $10 million would be a significant loss for the SEC, given its legal bill.
Moreover, the SEC filed a remedies-related reply brief in April to counter Ripple’s proposal for a $10 million penalty. The SEC calculated a penalty floor of $102.6 million, significantly higher than Ripple’s $10 million offer.
After legal fees over $150 million, Ripple might accept a $102.6 million settlement offer. A settlement would also prevent the SEC from appealing rulings from the case.
Programmatic Sales of XRP Ruling
In July 2023, Judge Torres also ruled that programmatic sales of XRP do not satisfy the third prong of the Howey Test.
The SEC filed a Motion for Interlocutory Appeal in August 2023 to try to overturn the ruling. However, Judge Torres rejected the Motion in October 2023, meaning the SEC must wait until the final verdict before filing an appeal.
Ripple considered the Programmatic Sales of XRP ruling a big win for the crypto industry. A settlement would cement the ruling that influenced the Binance Case.
In June 2024, Judge Amy Berman Jackson dismissed the SEC charges against Binance, claiming that secondary sales of binance coin (BNB) qualify as securities under the Howey test. Judge Jackson cited the Programmatic Sales of XRP ruling, surmising,
“The court is inclined to agree with the approach of the court in Ripple Labs, since the ‘it-is-what-it-is’ approach of the SEC appears to be inconsistent with the clear Supreme Court directives […].”
An official end to SEC plans to appeal against the Programmatic Sales ruling could boost XRP demand.
How Could XRP React to a Settlement?
On July 13, 2023, XRP surged from $0.4711 to a session high of $0.9327 in reaction to the Programmatic Sales of XRP ruling. However, XRP was below $0.50 by mid-August because of SEC appeal expectations.
A settlement could fuel an XRP break above $1.00.
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