In the legal dispute between the US Securities and Exchange Commission (SEC) and Ripple Labs, Judge Analisa Torres has issued a preliminary ruling, but not a summary judgment decision. However, the judge has issued a 57-page ruling on both parties’ motions to exclude expert testimony from summary judgment (“Daubert”).
At first glance, neither Ripple nor the SEC won. The SEC’s motion is granted in part and denied in part, and Ripple’s motion is granted in part and denied in part.
In this context, Scott Chamberlain, former lawyer and founder of Evernode XRPL, stated“Neither side gets everything they ask for because neither side has a perfect argument for everything they want. What comes out is how sharp, rigid, and impartial Judge Torres is.
Here’s What The Rules Mean For Ripple
As Chamberlain explained, there was no winner or loser to be found from the decision. However, the win goes to Ripple when it comes to one of the most important results of the regulation, the exception of expert witness number 1, Patrick Doody. This is what the SEC has hired to analyze the expectations of XRP buyers.
XRP community advocate Jeremy Hogan comments on Twitter that the SEC must prove that investors have “responsible” expectations of profits from Ripple’s efforts, because Doody this is important:
And the Judge just struck the SEC’s Expert Witness on the matter. So, now, how can the SEC prove “reasonable” reliance? Who will testify? Just thinking out loud. 🙂
The ruling for the SEC was made by Judge Torres regarding expert witness number 3, which Ripple called “irrelevant and unreasonably prejudicial”. The judge acknowledged that the expert’s testimony “regarding the Defendant’s incentives and actions to influence the price of XRP is directly relevant” to the final element of the Howey test for investment contracts.
Hogan wrote about this that the judge thought that “expert #3’s opinion about Ripple’s incentives and actions to influence the price of XRP is relevant to the issue of reasonable profit expectations.” However, it seems like a weak enough sauce for me.
Another of the few bad results for the SEC from the Daubert challenge is that SEC lawyers are trying to ask Judge Torres to block XRP community lawyer John E. Deaton from the agencies in the case, in part because he revealed the names of their expert witnesses. However, he not only banned Deaton, but agreed with him that Doody should not testify on behalf of XRP holders.
Another Argument For Ripple
Another XRP community lawyer, Bill Morgan, also found some arguments why the judge’s ruling could easily favor Ripple.
As Morgan write, in a summary judgment motion, the SEC cited at least six actions taken by Ripple to boost the price of XRP. Related to this, the SEC also lost its power because the judge rejected Dr. Metz’s opinion that Ripple’s announcement caused the XRP price to rise.
Also, Morgan is “happy” that most of Alan Schwartz’s reporting is allowed. This corresponds to the “Blue Sky” question. Schwartz will be allowed to testify about the Ripple contract and how it differs from the Howey contract. “That’s important,” Morgan said.
Furthermore, the judge accepted that the contract and its terms were relevant to the question of whether there was an investment contract. He notes that Schwartz’s evidence fits that analysis. Morgan then said:
I also heartened that the judge accepted that XRP has a relevant use for the question as the third prong of Howey. I think Adriaen’s opinion on this issue that the judge allowed is more important than the two opinions he denied.
So, all in all, it’s not an outright win for Ripple, but it’s certainly encouraging. The price of XRP has reacted cautiously to the release, rising 2.4% in the last 24 hours. At press time, XRP was trading at $0.3786.
Featured images from Sergeitokmakov/Pixabay, Charts from TradingView.com