U.S. Regulation

SEC Appeals Ripple Ruling, Seeks Reversal on XRP Classification

The U.S. Securities and Exchange Commission has formally filed an appeal in its legal battle with Ripple Labs, challenging a July 2023 ruling that partially dismissed claims against the company. Filed late Wednesday, the appeal focuses on whether Ripple’s XRP sales to retail investors qualify as unregistered securities transactions under federal law.

Citing the Howey Test, the SEC argues that Ripple’s promotional efforts created an expectation of profits among investors, making XRP an investment contract. Ripple and the SEC did not immediately respond to Decrypt’s request for comment. While the regulator already filed its appeal in mid-October 2024, following the district court’s partial ruling in favor of Ripple in July 2023, Wednesday’s opening brief represents a formal step in the appellate process, where the SEC outlines its arguments to challenge the court’s prior decision.

The agency disputes the district court’s finding that sales on crypto exchanges did not meet this standard, emphasizing that investor expectations hinge on the issuer’s actions, not the identity of the seller. The brief also challenges the lower court’s decision to exclude XRP distributed in non-cash transactions, such as employee compensation and business incentives, from securities laws. The SEC asserts that labor and services received in exchange for XRP satisfy the “investment of money” criterion outlined in the Howey framework. Ripple’s legal team has consistently rejected the SEC’s claims, maintaining that XRP is a digital cy, not a security.
On Wednesday, Chief Legal Officer Stuart Alderoty labeled the SEC’s latest filing a “rehash of failed arguments,” predicting the case will lose momentum under a Trump administration. The outcome of the appeal could have far-reaching implications for the crypto industry. Industry stakeholders view the case as a bellwether for regulatory clarity on digital asset classifications.  A reversal could embolden the SEC to pursue similar cases, while a defeat may curtail its enforcement authority.
The dispute, which began in late 2020, has drawn significant attention from investors and lawmakers alike. Ripple has described the SEC’s enforcement actions as an impediment to innovation, framing the case as part of a broader debate over the future of U.S. crypto regulation.  A resolution in the appeals court is not expected until sometime later this year.
Terron Gold

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