TL;DR
- The SEC appeals a 2023 court ruling that partially dismissed its claims against Ripple, seeking to overturn it.
- The appeal focuses on whether XRP sales to retail investors should be considered unregistered securities transactions under federal law.
- The final decision in the appeals court could have a significant impact on cryptocurrency regulation in the U.S., potentially affecting future cases.
The U.S. Securities and Exchange Commission (SEC) has taken a new step in its legal battle against Ripple Labs, formally filing an appeal against the July 2023 ruling that partially dismissed the SEC’s claims against the company. The new filing, submitted on Wednesday, argues that Ripple’s XRP sales to retail investors should be treated as unregistered securities transactions, violating federal securities law.
In its appeal, the SEC invokes the “Howey Test,” a crucial standard in securities law, which establishes that an investment contract exists if there is an expectation of profits derived from the issuer’s efforts. The agency argues that Ripple’s promotional activities created an expectation of profits among investors, making XRP an investment contract subject to securities regulations.
The Appeal’s Content and Controversies
The SEC’s appeal challenges the district court’s ruling that XRP sales on cryptocurrency exchanges did not meet the standard for securities transactions. The SEC argues that investor expectations are not dependent on the identity of the seller, but rather on the actions of the issuer of the asset, in this case, Ripple.
Additionally, the SEC is contesting 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 argues that these XRP exchanges meet the “investment of money” criterion under the Howey framework.
Ripple, on the other hand, has maintained a firm stance, insisting that XRP is a cryptocurrency, not a security. Stuart Alderoty, Ripple’s chief legal officer, called the SEC’s appeal a “rehash of failed arguments” and predicted the case would lose momentum under a possible Trump administration.
Implications for the Crypto Industry
The outcome of this appeal could have far-reaching consequences for the cryptocurrency industry in the U.S. If the SEC wins, it could gain more authority to pursue similar cases, potentially tightening cryptocurrency regulations in the country. Conversely, if the ruling favors Ripple, it could limit the SEC’s power and provide clarity on the classification of digital assets.
The dispute, which began in late 2020, remains a key topic for investors and lawmakers alike, who are watching closely to see how the appeals court resolves the issue. A resolution is not expected until the end of 2025.
