TLDR:
- Ripple filed Form C appeal challenging SEC’s $125M penalty for institutional XRP sales
- Appeal disputes court’s application of Howey Test and interpretation of investment contracts
- No new evidence can be submitted during appeals process
- SEC not contesting earlier ruling that XRP isn’t a security for programmatic sales
- Case focuses specifically on institutional sales classification, not XRP’s overall security status
Ripple Labs has filed a Form C cross-appeal in the U.S. Court of Appeals for the Second Circuit, challenging a $125 million penalty imposed for its institutional XRP sales.
Stuart Alderoty, Ripple’s Chief Legal Officer, announced the filing on October 25, 2024, emphasizing that the case centers specifically on institutional sales rather than XRP’s broader classification. The appeal follows an August decision by the U.S. District Court for the Southern District of New York, which ruled that Ripple’s institutional XRP sales constituted securities transactions.
Today, Ripple filed a Form C – listing the issues we plan to raise on our cross appeal. A few things to keep in mind as we move forward:
The case is not about whether XRP, in and of itself, is a security. XRP is uniquely situated as having clarity (alongside BTC) in not being… https://t.co/AmFocAnbPx
— Stuart Alderoty (@s_alderoty) October 25, 2024
The Form C filing outlines four main arguments against the SEC’s position. First, Ripple contests the court’s interpretation of investment contracts under the 1933 Securities Act. The company argues that legitimate investment contracts must include post-sale obligations and entitle buyers to profits from the seller’s activities – elements they claim were absent in their XRP sales.
Second, Ripple challenges how the court applied the Howey Test, a 1946 legal framework used to identify securities transactions. The company disputes findings related to “investment of money” and “common enterprise” criteria, maintaining that institutional XRP sales didn’t satisfy these requirements.
The appeal also raises a fair notice defense, arguing that the SEC failed to provide clear guidance that would have allowed Ripple to avoid regulatory violations. Pro-XRP attorney Jeremy Hogan suggests that success on this point could impact future SEC enforcement actions.
Additionally, Ripple takes issue with the court’s injunction requiring the company to “follow the law,” arguing that such broad wording lacks necessary specificity for compliance.
The appeals process will proceed as a de novo review, meaning the court will examine the legal interpretations without deference to previous conclusions. Importantly, Alderoty confirmed that no new evidence can be introduced during this phase.
Meanwhile, the SEC has filed its own appeal, focusing on Ripple’s programmatic XRP sales and employee distributions. The regulatory body has expressed concerns about Ripple executives Brad Garlinghouse and Chris Larsen’s roles in allegedly aiding unregistered sales.
Despite these legal challenges, Ripple continues its business operations. Recent weeks have seen increased interest in XRP, with asset managers Bitwise and Canary Capital filing applications for XRP-backed ETFs.
The case has drawn attention from both the crypto community and institutional players, as its outcome could influence future digital asset classification. A ruling from the appeals court will help determine the extent of SEC’s regulatory authority over cryptocurrency transactions.
The appeal process remains focused on specific legal questions rather than broader regulatory issues. As the case moves forward, both parties will argue their positions based on existing case records, potentially streamlining the proceedings compared to the initial trial phase.
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