Interlocutory Appeals in Crypto Cases: Contrasting Decisions Highlight Nuances of Howey Test Application

The ongoing legal battles between the U.S. Securities and Exchange Commission (SEC) and crypto companies Ripple Labs and Coinbase have highlighted contrasting judicial decisions on interlocutory appeals.

The ongoing legal battles between the U.S. Securities and Exchange Commission (SEC) and crypto companies Ripple Labs and Coinbase have highlighted contrasting judicial decisions on interlocutory appeals. While Coinbase secured approval for an interlocutory appeal in its case, as reported by Axios, Ripple’s similar request was denied in 2023, sparking comparisons within the legal community.

Coinbase Granted Interlocutory Appeal

On January 5, Judge Catherine Polk Failla allowed Coinbase to pursue an interlocutory appeal regarding her earlier decision not to dismiss portions of the SEC’s complaint against the exchange. This development stems from allegations that Coinbase facilitated trading of crypto assets classified as securities. Judge Failla’s decision temporarily halts proceedings in her court as the case advances to the Second Circuit Court of Appeals.

Coinbase had challenged the application of the Howey Test—used to determine whether a transaction constitutes an investment contract—arguing it was not applicable to its listed assets. Judge Failla acknowledged the significance of this legal issue, granting the appeal to address broader regulatory implications.

Ripple’s Request Denied in 2023

In contrast, Judge Analisa Torres denied the SEC’s request for an interlocutory appeal in its case against Ripple Labs. As detailed in her ruling, Judge Torres found the underlying facts to be “extensively disputed” and supported by “detailed expert reports.” She concluded that “certain transactions were sales of securities, and others were not,” deeming the SEC’s arguments unsuitable for certification for interlocutory appeal.

Legal expert Bill Morgan commented on the differing outcomes, stating on X (formerly Twitter): “Judge Failla explains why the SEC failed to obtain leave to pursue an interlocutory appeal against Ripple in 2023… in contrast to why she granted Coinbase leave.”

The contrasting rulings highlight the nuanced application of the Howey Test and differing judicial interpretations in crypto-related cases. Judge Failla’s acknowledgment of broader legal questions in Coinbase’s case suggests a readiness to address systemic regulatory concerns.

Judge Failla explains 👇why the SEC failed to obtain leave to pursue an interlocutory appeal against Ripple in 2023 in SEC v Ripple in contrast to why she granted Coinbase leave to pursue an interlocutory appeal against the SEC in respect of her decision to partly not strike out… https://t.co/F5bzjtIpPY pic.twitter.com/z6WHHHI8yo

— bill morgan (@Belisarius2020) January 7, 2025

Meanwhile, Ripple’s inability to secure an interlocutory appeal underscores the challenges of disputing SEC allegations on a case-by-case basis. The ongoing developments in both cases continue to shape the future of crypto regulation in the United States.