SEC’s appeal in Ripple case strengthens Coinbase’s argument, says legal expert

Key Takeaways

SEC’s appeal in Ripple case demonstrates ambiguity in Howey Test application, Coinbase’s legal team said.
Coinbase uses SEC’s legal stance to push for clarity in digital asset classification.

The SEC’s appeal in the Ripple case only reinforced Coinbase’s position in its ongoing legal battle with the regulator, said James Murphy, a renowned crypto lawyer.

Coinbase’s legal team is urging the New York court to grant early approval for their interlocutory appeal filed in April. They refer to the SEC’s recent legal move in the Ripple case as evidence of the Howey Test’s ambiguity and seek to have the Second Circuit Court of Appeals step in to resolve the issue.

Coinbase’s lawyers claim that a thorough review of the Howey Test’s application in the ongoing SEC vs. Coinbase Inc. and Coinbase Global lawsuit would provide much-needed clarity about the classification of digital asset transactions.

“By granting Coinbase’s motion for interlocutory appeal, this Court would help ensure that the Second Circuit has before it a full account of the legal and practical implications of the SEC’s litigating position-a position that the SEC acknowledged just weeks ago has sown “confusion,” Coinbase’s legal team wrote in an Oct. 4 letter, first shared by FOX Business journalist Eleanor Terrett.

An interlocutory appeal is typically not granted before the final judgement. However, Coinbase’s lawyers believe the SEC’s appeal against Ripple’s court ruling could strengthen their arguments, and Judge Katherine Polk Failla may reconsider their interlocutory appeal.

On October 2, the SEC officially lodged an appeal against Judge Torres’ Aug. 7 ruling that imposed a $125 million fine on Ripple for improper institutional sales of XRP tokens. In response, Ripple Chief Legal Officer Stuart Alderoty said the team was considering a cross-appeal to challenge the SEC’s move.

According to Murphy, Judge Katherine Polk Failla’s delay in ruling on Coinbase’s original motion for interlocutory appeal is “astounding” given that “those motions are normally ruled on very quickly.”

In August last year, the SEC sought an interlocutory appeal to challenge a summary ruling by Judge Analisa Torres that certain XRP sales did not constitute securities under the Howey Test. Less than two months after the move, Judge Torres rejected the SEC’s request for an interlocutory appeal.