In a major development on July 31, U.S. Judge Jed Rakeoff of the Southern District of New York has rejected Terraform’s motion to dismiss the fraud charges levied against the company by the United States Securities and Exchange Commission.  While ruling over this case, Judge Rakeoff has also expressed his disagreement with fellow Judge Analisa Torres on the recent decision in the Ripple v. SEC case.

On July 18, lawyers representing Terraform Labs and its CEO Do Kwon in their ongoing lawsuit with the SEC filed a motion to dismiss, basing their arguments on Ripple’s partial victory against the financial regulator.

Earlier in July, Judge Torres had delivered an important ruling, stating that retail sales of the XRP token did not violate U.S. securities law. Using the Howey Test, Torres deemed that only the institutional sales of XRP could be considered an offense.

The SEC responded swiftly to Terraform’s motion, urging the court to disregard the rulings which favored Ripple as they were “wrongly decided”. Following the court’s decision on Monday, Judge Rakeoff has sided with the SEC, with Terraform Labs and Do Kwon now set to face the fraud allegations by the commission.

In a 50-page Opinion and Order document, Judge Rakeoff stated that the SEC in its arguments, has “asserted a plausible claim” that the sale of TerraUSD (UST) and LUNA, among others, did violate U.S. Securities law. 

The U.S. judge also referred to the Ripple case’s ruling, which he firmly disagreed with, as the Howey Test has no provisions in regard to differences between institutional and retail investors. A statement from the memorandum said:

….Howey makes no such distinction between purchasers. And it makes good sense that it did not. That a purchaser bought the coins directly from the defendants or, instead, in a secondary re-sale transaction has no impact on whether a reasonable individual would objectively view the defendants’ actions and statements as evincing a promise of profits based on their efforts

Following this recent ruling in the SEC v. Terraform et al. case, there is much speculation over the future of Ripple’s partial victory over the financial regulator. 

Ripple Chief Technology Officer David Schwartz may have provided the much-needed optimism for the Ripple community. He tweeted on Aug. 1 suggesting that the ruling in Terraform’s case may be based on the “unusual properties” of that particular case.

This ruling seems to be based no some very unsual properties of this particular scheme and not the way cryptocurrencies generally work. None of the below, the crux of the reasoning here, applies to typical cryptocurrencies as far as I can tell. pic.twitter.com/P41jiwlZaG

— David “JoelKatz” Schwartz (@JoelKatz) August 1, 2023

In addition, Schwartz stated that the court’s disagreement with Ripple’s ruling appears to have been based on the difference in facts between cases. 

For now, many XRP investors and crypto would likely be keeping a close eye on Ripple’s case with the SEC, especially as the commission hinted at a potential appeal in its rebuttal to Terraform’s motion to dismiss back on July 21.  

Earlier in July, the former SEC Chair of the Office of Internet Enforcement, John Reed Stark, stated a victory for the regulator in the Court of Appeals was possible and would not be “unprecedented.”

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