Ripple Files Cross-Appeal Against SEC Ruling on XRP Sales
Ripple Labs has intensified its legal confrontation with the U.S. Securities and Exchange Commission (SEC) by filing a Form C cross-appeal in the U.S. Court of Appeals for the Second Circuit. This action challenges a prior ruling that classified certain XRP sales to institutional investors as securities and counters the SEC’s October 16 appeal, which sought to overturn a favorable district court ruling for Ripple earlier this year. This move is significant in the ongoing dispute with the regulatory agency.
Ripple’s Chief Legal Officer, Stuart Alderoty, announced the appeal on X (formerly Twitter), noting that this stage will focus on existing evidence. The Appeals Court will not allow the SEC to introduce new arguments or request additional information from Ripple. The appeal seeks a de novo review, meaning the court will reevaluate the case from the beginning, including whether XRP transactions qualify as securities under the Howey test.
The Howey test, established in a 1946 Supreme Court case, determines if a transaction qualifies as an investment contract based on factors like financial investment and profit expectations driven by the issuer's efforts. Ripple’s call for a new analysis could redefine how these standards apply to cryptocurrencies, potentially affecting regulatory practices across the sector.
Ripple's filing also criticizes the SEC's ambiguous application of securities laws to digital assets. The SEC has argued that Ripple's XRP sales are securities, insisting that Ripple comply with federal regulations. Ripple’s challenge underscores the confusion in regulatory guidelines, leaving many in the crypto space uncertain about compliance.
A previous court ruling using the Howey test found that XRP sales to the general public were not securities, but determined that initial XRP sales to institutional investors were unregistered securities, resulting in a $125 million penalty against Ripple. By seeking a de novo review, Ripple aims to overturn this penalty and reassess the classification of those early sales.
The outcome of this cross-appeal could significantly impact the broader cryptocurrency industry. A ruling favoring Ripple might restrict the SEC's authority over digital assets, providing greater freedom for crypto firms. Conversely, a decision supporting the SEC could reinforce its power to enforce securities laws, emphasizing the necessity for regulatory compliance.
This case has drawn attention from legal and crypto communities due to its potential influence on digital asset regulation. Ripple’s request for a comprehensive review underscores ongoing debates about the governance of cryptocurrencies under current financial laws. As the appeal progresses, both parties prepare for a legal confrontation that may have widespread implications for the industry.