The United States Securities and Exchange Commission has officially appealed the Ripple ruling, as the legal battle between the regulator and Ripple Labs continues.
The SEC’s appeal challenges a July 2023 ruling that partially dismissed claims against Ripple. The regulator wants the appeals court to rule that XRP tokens sold to retail investors were unregistered securities.
SEC Files Appeal
The appeal was filed late on Wednesday and primarily focuses on Ripple’s XRP sales to retail investors and whether they qualify as unregistered securities transactions under federal law. The SEC argued in the appeal to the Second Circuit Appeals Court that a New York District Court was wrong to rule that XRP sold to investors was not an unregistered securities offering. It cited the Howey Test and argued that Ripple’s promotional efforts created an expectation of profit among investors, making XRP an investment contract. The SEC also contested that XRP given to employees as compensation and in business deals was wrongly excluded from being classified as a security, outlining that labor and services received in exchange for XRP satisfy the investment of money criteria outlined in the Howey framework.
“All XRP investors — not just institutional investors who purchased XRP knowingly from Ripple — reasonably expected profits from Ripple’s efforts to increase the price of XRP. That distinction is contrary to Howey’s objective standard.”
If the appeal is successful, the case will return to the district court, where a judge will decide what actions should be taken against Ripple and if the company’s top executives helped violate securities laws when XRP was sold to investors.
Ripple’s Response
Ripple CEO Brad Garlinghouse responded to the SEC’s appeal on X, stating that the SEC was doing the same thing over and over again and expecting a different result.
“One definition of insanity…. Doing the same thing over and over and expecting different results. Gensler’s SEC really took this to heart..”
Meanwhile, Ripple’s legal team has rejected the SEC’s claims, maintaining that XRP is a currency, not a security. Ripple’s Chief Legal Officer Stuart Alderoty called the SEC’s appeal a “rehash of failed arguments” and predicted the case would lose momentum under the incoming administration.
“As expected, the SEC’s appeal brief is a rehash of already failed arguments and is likely to be abandoned by the next administration. We’ll respond formally in due time. For now, know this: the SEC’s lawsuit is just noise. A new era of pro-innovation regulation is coming, and Ripple is thriving.”
Pro-crypto lawyer Jeremy Hogan stated he does not believe the case will be ruled on and found the brief lackluster.
“I was a little shocked […] that the SEC had failed to get any reasonable evidence into the record that actual XRP retail purchasers knew about Ripple and its ‘promises’ to them.”
Far-Reaching Consequences
The case could take months to play out, but its outcome could have significant implications for the crypto ecosystem. Many view the case as a bellwether for regulatory clarity on digital asset classification. If the decision is reversed, the SEC pursue more similar cases. However, a defeat for the regulator could significantly reduce its enforcement authority. The appeal comes amid growing optimism as Donald Trump prepares to assume office on Monday. Current SEC Chair Gary Gensler will also step down on Monday.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
