The US Securities and Exchange Commission (SEC) has appealed a US federal judge's ruling rejecting part of its case against Ripple Labs. In its latest filing to the Second Circuit Appeals Court on 15 January, the SEC argued that Judge Analisa Torres was incorrect to rule in July 2023 that Ripple's sales of XRP to retail investors were not unregistered securities offerings. The appeal follows Judge Torres' initial ruling blocking an interlocutory appeal back in October 2023.
The SEC’s filing maintains its stance that Ripple Labs promoted XRP in a manner that would lead buyers, including retail investors, to expect profits based on Ripple’s efforts. The SEC argues that this satisfies the criteria for an investment contract under the Howey Test, a long-standing legal standard for determining whether an asset or investment is a security under US laws.
Judge Torres previously distinguished between institutional sales of XRP (deemed securities) and retail sales through exchanges, where buyers were unaware of the seller's identity. The SEC contends that the distinction is flawed and petitions the appeals court to reconsider that finding.
Ripple, meanwhile, is holding its ground - and possibly rolling its eyes. Stuart Alderoty, Ripple's chief legal officer, did not mince words on social media platform X, calling the SEC’s brief a “rehash of already failed arguments”, while CEO Brad Garlinghouse labelled it as another attempt to apply inconsistent regulatory standards to digital assets.
Attorney Jeremy Hogan described the SEC’s brief as underwhelming, noting a lack of evidence connecting retail XRP buyers with Ripple’s supposed “promises.”
While the SEC carries on its appeal, Ripple has launched a cross-appeal targeting the $125 million civil penalty imposed by Judge Torres in respect of institutional sales.
The case continues to attract significant attention due to its potential impact on the classification of cryptocurrencies under US securities laws. If the SEC’s appeal succeeds, it could set a precedent, granting securities regulators broader authority over crypto transactions involving retail investors. Conversely, if Ripple prevails, it may narrow the SEC’s reach and clarify the regulatory landscape for digital assets.
Some legal professionals (like Jeremy Hogan) speculate that the SEC’s pursuit of Ripple may lose momentum under the incoming Trump administration. Past leadership, such as the Trump-era SEC, deprioritised cases that lacked fraud allegations, focusing instead on clearer instances of misconduct.
Despite the ongoing legal battle, XRP remains resilient. Following the SEC’s January 15 filing, the token’s price rose 10%, mirroring wider gains in the cryptocurrency market. This suggests that investor confidence in Ripple - or at least market sentiment toward the token - remains relatively robust following Trump's victory in November 2024.
The SEC’s continued pursuit of Ripple underscores the tension between regulators and the cryptocurrency industry, highlighting the urgent need for clear and consistent rules. For now, the case remains a litmus test for how digital assets are treated under US law.
Whether the SEC’s latest attempt to redefine XRP sales proves successful or ebbs away under a new administration remains to be seen.
Written by Luke Higgins and Steven Pettigrove
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