The notice of appeal was filed as there is increasing institutional interest in XRP. Meanwhile, SEC enforcement chief Gurbir Grewal announced that he is stepping down, which fueled speculation that the agency may shift its approach to crypto regulation. Additionally, AT&T faces a renewed lawsuit from crypto investor Michael Terpin over a 2020 SIM swap attack, while Kalshi has won a legal battle against the CFTC that allows it to offer election betting contracts.
SEC Appeals Ripple Lawsuit Ruling
The United States Securities and Exchange Commission (SEC) has filed a notice of appeal in its ongoing lawsuit against Ripple on Oct. 2, 2024. The SEC is seeking to overturn a previous ruling made by Judge Analisa Torres.
This decision was widely expected by legal experts, as the original ruling in 2023 was seen as a pivotal moment for Ripple Labs and the crypto industry. In that ruling, Judge Torres concluded that Ripple’s XRP token did not qualify as a security when sold in secondary markets, as it did not meet all the conditions of the Howey test. The SEC uses the Howey test to define investment contracts. As a result, secondary sales of XRP were not considered unregistered securities sales anymore.
However, Torres also pointed out that early sales of XRP by Ripple founders to institutional investors were indeed securities sales, due to how those transactions were conducted. Despite this, the 2023 ruling was celebrated by Ripple and the crypto community as a victory over the regulator.
Interest in XRP appears to be growing among institutional investors despite the SEC’s legal battle against Ripple. Asset management firm Bitwise filed for an XRP ETF trust in Delaware on Sept. 30 of 2024. Although this filing is a major step towards the creation of an XRP trust, it is important to remember that the application was not made to the SEC.
Considering the recent legal developments surrounding Ripple and the SEC’s appeal, it is very possible that any future approval of an XRP trust may face some delays.
Gurbir Grewal Resigns
Gurbir Grewal, the chief enforcer of the United States SEC, will step down on Oct. 11 after a tenure that was riddled with aggressive action against the crypto industry. Sanjay Wadhwa, the SEC’s deputy director of enforcement, will serve as the interim director while a permanent replacement is selected. Grewal's three-year leadership resulted in more than 100 enforcement actions targeting noncompliance in the crypto sector, including cases against some of the world's largest crypto trading platforms.
Part of the SEC’s press release (Source: SEC)
His sudden resignation has hit the crypto community rumour mill, and some people speculate that the SEC may be preparing to adopt a less strict approach toward crypto regulation. This shift happened as political pressure on the SEC mounts ahead of the November US presidential election.
In September, Democratic nominee Kamala Harris openly voiced her support for the US to become a leader in the cryptocurrency industry. Meanwhile, Republican nominee Donald Trump also pledged to remove SEC Chair Gary Gensler if he wins the election.
During a House Financial Services Committee hearing in September, Gensler faced a lot of criticism from lawmakers and SEC members over his handling of crypto regulation. The growing resistance from the crypto industry is also very evident, as firms like Ripple and Coinbase back Fairshake, a political action committee that has raised more than $169 million for the 2024 election cycle.
Jake Chervinsky, the chief legal officer at Variant Fund, described Grewal's departure as a sign of the SEC facing major setbacks in court. In his farewell statement, Grewal shared that he is very proud of his work, and also referred to certain accomplishments like recalibrating penalties, addressing emerging risks, and holding market participants accountable. His departure marks the end of a 21-year career at the SEC.
AT&T Back in Court
Ripple is not the only company butting heads with the law. AT&T is set to return to court after a summary judgment in its favor was partially overturned on appeal. The case dates back to 2020, when crypto investor Michael Terpin sued Ellis Pinsky, who was a high school student at the time, for stealing $24 million worth of crypto through a SIM swap attack. Pinsky, along with an accomplice, bribed an AT&T employee to transfer Terpin's SIM card information, which allowed them to bypass two-factor authentication protecting one of Terpin’s crypto wallets.
Terpin's legal battle with AT&T focuses on the telecom company's obligation to protect his SIM card information under Section 222 of the Federal Communications Act. While most of Terpin’s claims were dismissed by the Ninth Circuit Court of Appeals, his claim under this section was allowed to proceed.
The court did not reinstate Terpin’s fraud claims or his demand for $216 million in punitive damages. Terpin is now asking for a total of at least $45 million from AT&T, which includes the original $24 million in stolen funds, interest, and attorney's fees.
The complex case has involved several dramatic twists. One of which was the fact that Terpin successfully tracked down Pinsky, who returned $2 million of the stolen funds. In May of 2020, after Pinsky turned 18, Terpin sued him for $71.4 million on racketeering charges.
Pinsky has since agreed to testify in the case against AT&T. Terpin also sued Pinsky's accomplice, Nicholas Truglia, for $75.8 million in 2019, and won the case. The story of Pinsky and Truglia’s online meeting and the subsequent theft was even featured in a Rolling Stone article in 2022.
Court Greenlights Kalshi’s Election Betting Contracts
Prediction markets have also been under regulatory scrutiny, especially as the US presidential election approaches. However, a United States federal appeals court has ruled in favor of Kalshi, a derivatives exchange, allowing it to list event contracts tied to the outcomes of US elections.
The ruling was issued on Oct. 2 by the US Court of Appeals for the District of Columbia Circuit, and strikes a blow to the Commodity Futures Trading Commission (CFTC), which tried to block Kalshi from offering these contracts ahead of the US presidential election. The decision now opens the door for election prediction markets, including platforms like Polymarket, to operate in the US. There is already over $1 billion riding on the November election outcome on Polymarket, according to its website.
Polymarket’s presidential election winner odds and volume (Source: Polymarket)
Kalshi also previously won a legal battle against the CFTC in September, overturning an order that prohibited the listing of political event contracts. The CFTC argued that these contracts were similar to unlawful gaming activities and against the public interest. In response, the CFTC appealed the decision and asked for a stay to prevent Kalshi from listing any event contracts until the appeal was resolved.
However, the Oct. 2 court ruling rejected the CFTC's request as the agency did not demonstrate that it or the public will suffer irreparable harm during the appeal process. The court stated that the case was not about whether Kalshi’s product was favorable but about the legality of the contracts under existing US financial regulations.
