16th January 2025 – (New York) The U.S. Securities and Exchange Commission (SEC) has escalated its legal battle against Ripple Labs by formally appealing a July 2023 ruling that dismissed some of its claims. This appeal, filed late on Wednesday, centres on whether Ripple’s sales of its cryptocurrency, XRP, to retail investors constitute unregistered securities transactions under federal law.
In its appeal, the SEC invokes the Howey Test, asserting that Ripple’s marketing practices created a reasonable expectation of profits among investors, thereby categorising XRP as an investment contract. This move follows the SEC’s earlier appeal in mid-October 2024, which was initiated after a district court ruled partially in favour of Ripple.
The agency argues that the district court erred in its determination that sales on cryptocurrency exchanges did not meet the criteria for securities transactions. The SEC contends that investor expectations are influenced by the actions of the issuer, rather than the seller’s identity. Additionally, the brief challenges the exclusion of XRP distributed in non-cash transactions, such as employee compensation, from securities regulations, asserting that these transactions satisfy the “investment of money” requirement outlined in the Howey framework.
Ripple’s legal team has consistently countered the SEC’s claims, asserting that XRP is a digital currency and not a security. Chief Legal Officer Stuart Alderoty referred to the SEC’s recent filing as a “rehash of failed arguments,” suggesting that the case may lose momentum under a potential Trump administration.
The ongoing dispute has significant implications for the broader cryptocurrency industry, as it is viewed as a critical indicator of regulatory clarity regarding digital asset classifications. A reversal of the lower court’s ruling could empower the SEC to pursue similar actions against other cryptocurrency entities, while a defeat may limit its enforcement capabilities.
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