SEC files opening brief in its appeal against Ripple over XRP

The US Securities and Exchange Commission has filed its arguments appealing a federal court judge’s ruling in its partially failed case against Ripple Labs — which has been slammed by the company’s chief legal officer.

The SEC argued in a Jan. 15 filing to the Second Circuit Appeals Court that a New York District Court was wrong to rule that XRP (XRP $3.09) sold to retail investors wasn’t an unregistered securities offering.

It asked the appeals court to overturn Judge Analisa Torres’ July 2023 ruling and have XRP sales to retail investors classed as unregistered securities, along with handing an updated judgment to Ripple if overturned. 

The SEC also argued that XRP given as employee compensation and in business deals was also wrongly excluded from being classified as a security.

The SEC’s latest filing moves forward with an appeal it launched in October after the agency partially lost its long-running suit against Ripple it filed in December 2020.

Judge Torres found XRP was security when sold to institutions but not when sold to retail investors through exchanges, as those investors didn’t know who was selling it.

In its appeal, the SEC argued that XRP buyers, including retail investors, would have expected a profit due to what it claimed was Ripple’s promotional efforts of the token.

It claimed Ripple’s efforts made XRP an investment contract under the securities-defining Howey test, an argument the agency has made with multiple crypto firms against which it has taken action.

Ripple CEO Brad Garlinghouse said in a Jan. 15 X post that the SEC was “doing the same thing over and over and expecting different results.”

“As expected, the SEC’s appeal brief is a rehash of already failed arguments — and likely to be abandoned by the next administration,” Ripple chief legal officer Stuart Alderoty wrote on X.

Reuters earlier reported that the SEC under incoming President Donald Trump could freeze the agency’s litigation on cases that don’t include fraud allegations, meaning cases over securities law violations could essentially be abandoned.

Pro-crypto lawyer Jeremy Hogan said on X that he doesn’t believe the case will be ruled on and that he “found the brief lackluster — almost as though the drafter knew he was wasting his time.”

“I was a little shocked [...] that the SEC had failed to get any reasonable evidence into the record that actual XRP retail purchasers knew about Ripple and its ‘promises’ to them,” Hogan added.

It could take months for the appeals court process to play out. Ripple will have the opportunity to submit written counter-arguments, and the court may choose to hear oral arguments before making a decision.

Ripple has also cross-appealed the SEC’s partially won New York lower court case to the Second Circuit as Judge Torres had ordered it to pay a $125 million civil penalty for the aspects of the case it lost.

At the time of writing, XRP was up 10% over the past 24 hours despite the SEC’s filing, alongside wider daily gains in the crypto market.