Agency Appeals 2023 Decision—What’s Next?

The U.S. Securities and Exchange Commission (SEC) has formally appealed against a 2023 ruling that found sales of Ripple’s XRP token on crypto exchanges did not break securities laws.

According to the regulator, District Court Judge Analisa Torres was “factually and legally” wrong when she concluded that offers and sales of XRP to the public via crypto trading platforms and the company’s offers of the token as employee compensation and in business deals did not constitute investment contracts.

Details of the Appeal

In the brief filed late on January 15, the SEC requested the U.S. Court of Appeals for the Second Circuit to overturn Judge Torres’ decision and order a summary judgment in its favor regarding Ripple’s offers and sales of XRP to retail investors and for those instances it was exchanged for non-cash considerations.

This long-running case goes back to 2020 when the regulator sued Ripple, claiming the crypto company had raised at least $1.3 billion from the sale of XRP, which it deemed an unregistered security. Three years later, Judge Torres ruled on the matter, concluding that while institutional sales of the token violated U.S. securities laws, programmatic ones did not due to their blind-bid nature.

While the financial watchdog filed an appeal against the verdict in October last year, this latest move marks a more formal step in the process. The agency is outlining its reasoning for challenging the decision made by the district court.

Once again, it bolstered its argument using the Howey Test, claiming that XRP buyers would have expected to profit from Ripple’s promotion of the token, making it an investment contract.

The SEC also argued that the anticipation of profit from the efforts of others is not determined by the identity of the person or entity offering an investment but by what they say and do. For that reason, those buying XRP from exchanges still expected to gain, contrary to Judge Torres’ determination.

Ripple Executives React

Shortly after the filing, Ripple’s chief attorney, Stuart Alderoty, took to social media to lambast the SEC’s move, calling it “a rehash of already failed arguments.” The lawyer also noted that Ripple will make a formal response of its own in due time. However, he expressed optimism that the incoming Trump administration will likely abandon the litigation.

“For now, know this: the SEC’s lawsuit is just noise. A new era of pro-innovation regulation is coming, and Ripple is thriving,” he remarked.

On his part, CEO Brad Garlinghouse described the filing as “insanity.” He called out the agency for doing the same thing repeatedly and expecting different results. The executive also accused Chair Gary Gensler, who is set to step down in a few days, for taking the matter personally.