TLDR
- The SEC has launched an appeal to classify all XRP sales as securities, challenging a previous court ruling that differentiated between retail and institutional sales
- The appeal argues that Ripple’s $2 billion in XRP sales violated securities laws, regardless of buyer type
- A ruling in SEC’s favor could lead to additional penalties beyond the existing $125 million fine
- The timing aligns with an upcoming SEC leadership change and potential policy shifts under the Trump administration
- Both Ripple executives and crypto lawyers have criticized the SEC’s appeal as repetitive and lacking evidence
The Securities and Exchange Commission (SEC) has filed a new appeal that could reshape how XRP is bought and sold in the United States. The appeal seeks to overturn a court decision that allowed retail trading of XRP while restricting institutional sales.
Filed on Wednesday, the SEC’s brief asks the U.S. Court of Appeals for the 2nd Circuit to review last year’s ruling by Judge Analisa Torres. That ruling created a split decision, finding that XRP was a security when sold to large investors but not when traded by regular people on cryptocurrency exchanges.
The SEC’s main argument centers on the idea that all XRP sales should be treated the same way under the law. They point to the Howey test, which courts use to decide if something counts as a security. According to the SEC, it doesn’t matter who bought XRP or how they got it – the important part is that everyone expected to make money based on Ripple’s work.
Defense lawyer James Filan shared details of the brief, which shows the SEC focusing on Ripple’s marketing efforts. The regulator claims Ripple’s campaign to boost XRP’s price reached everyone who bought the cryptocurrency, from big institutions to small retail traders.
The appeal takes issue with how the previous court separated different types of XRP buyers. Judge Torres had decided that institutional investors who bought directly from Ripple were buying securities, while retail traders who bought on exchanges weren’t. The SEC says this distinction doesn’t make sense under the law.
Another key point in the appeal involves XRP given to Ripple employees and business partners. The SEC argues that getting XRP as payment for work is the same as investing money, which matters for determining if something is a security.
The numbers involved are substantial. Ripple’s XRP sales topped $2 billion, which the SEC calls unregistered securities sales that broke federal law. Currently, Ripple faces a $125 million fine for institutional sales, but this could increase if the SEC wins its appeal.
The timing of this appeal comes during a period of change at the SEC. Gary Gensler is stepping down as chairman, and the incoming Trump administration may bring new approaches to cryptocurrency regulation. Some industry experts think ongoing legal cases might be dropped or settled under new leadership.
Commissioners Hester Peirce and Mark Uyeda are preparing changes to how the SEC handles cryptocurrency rules. These changes could affect how digital assets are classified and might pause some current legal cases that don’t involve fraud.
Ripple’s leaders have responded to the appeal with skepticism. CEO Brad Garlinghouse compared it to doing the same thing repeatedly while expecting different results. Stuart Alderoty, Ripple’s chief legal officer, predicted the next administration might drop the appeal entirely.
Crypto lawyer Jeremy Hogan pointed out what he sees as weaknesses in the SEC’s argument. He noted the SEC’s brief lacks evidence showing retail XRP buyers knew about or relied on Ripple’s promises. Hogan described the filing as “lackluster” and suggested even its writers might have doubted its purpose.
The appeals process will take time to unfold. Ripple gets to respond with its own arguments in writing, and the court might hold in-person arguments before making any decisions. This could stretch out over several months.
While this plays out, Ripple isn’t just playing defense. They’ve filed their own appeal against the $125 million penalty for institutional sales. Both sides are challenging different parts of Judge Torres’s original ruling.
Market reaction to the SEC’s appeal has been surprisingly positive. XRP’s price rose 10% in the day after the filing, moving along with general market gains in the cryptocurrency sector.
This case matters beyond just Ripple and XRP. How the appeals court rules could affect how other cryptocurrencies are regulated in the United States. The outcome might set guidelines for when digital assets count as securities and when they don’t.
The cryptocurrency industry continues to watch this case closely. Its outcome could create new legal standards for digital asset classification and impact how cryptocurrency companies operate in the United States.
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