U.S. Securities and Exchange Commission filed an official appeal against a ruling in July 2023 that dismissed some claims made by Ripple.
This appeal was filed on late Wednesday and focuses primarily on whether Ripple XRP transactions to retail investors can be considered unregistered security transactions under federal laws.
The SEC cites the Howey Test to argue that Ripple’s promotional activities created expectations of profit among investors and made XRP an Investment Contract.
Ripple & the SEC have not responded immediately to Decrypt's Request for comments
While the regulator already filed its appeal in mid-October 2024, following the district court's partial ruling in favor of Ripple in July 2023, Wednesday’s opening brief represents a formal step in the appellate process, where the SEC outlines its arguments to challenge the court's prior decision.
The agency has disputed the court’s ruling that crypto-exchange sales did not comply with this standard. It argues that the investor’s expectations are based on what the seller does, and not on who the issuer is.
This brief challenges also the decision of lower court to exclude XRP that is distributed as part of non-cash transaction, like employee compensation or business incentives.
The SEC claims that the labor and service received as exchange for XRP is sufficient to satisfy its requirements “investment of money” Howey Framework criterion.
Ripple’s legal team consistently rejects the SEC’s claims. They maintain that XRP, a digital coin, is not a financial instrument.
Stuart Alderoty, the Chief Legal Officer of the SEC on Wednesday, labeled its latest filing as a “rehash of failed arguments,” The case is predicted to lose steam under the Trump administration.
The appeal’s outcome could have wide-ranging implications for the cryptocurrency industry. The case is seen by industry stakeholders as an indicator of regulatory clarity regarding digital asset classifications.
The SEC may feel emboldened by a reversal to continue pursuing similar cases. A defeat, however, could limit its ability to enforce the law.
Investors and legislators have paid close attention to the dispute that began late in 2020.
Ripple’s description of the SEC’s enforcement action as an obstacle to innovation is part of a larger debate about the future U.S. Crypto regulation.
It is unlikely that the court of appeals will issue a decision until this time next year.