SEC’s Full Appeal Against Ripple: A $125 Million Battle Over XRP’s Future
The U.S. Securities and Exchange Commission (SEC) has taken another step in its long-running legal battle with Ripple Labs by filing a notice of appeal with the Second Circuit Court of Appeals. This move comes roughly two months after a ruling by Judge Analisa Torres, who had delivered a partial victory to Ripple in a decision that reverberated across the cryptocurrency industry.
The Ripple vs. SEC case, which dates back to December 2020, revolves around the SEC’s allegations that Ripple and its executives, Bradley Garlinghouse and Christian Larsen, unlawfully sold securities in the form of XRP tokens, violating the Securities Act of 1933. While the court had sided with the SEC on some issues, Judge Torres notably ruled that XRP sales on secondary markets were not securities, handing Ripple a crucial victory.
Key Milestones in the Legal Drama
On July 13, 2023, Judge Torres partially granted and partially denied motions from both the SEC and Ripple. Ripple’s victory centered on its Programmatic Sales and other distributions, as well as sales conducted by Garlinghouse and Larsen. The court ruled that these transactions did not meet the Howey test's criteria for an investment contract, particularly because the XRP buyers and sellers were unaware of each other’s identities during blind bid/ask transactions on digital asset exchanges.
On the other hand, the SEC succeeded in getting a favorable judgment regarding Ripple’s Institutional Sales. However, the SEC’s attempt to pin aiding and abetting claims on Ripple’s top executives was denied, dealing another blow to the regulatory agency.
Ripple’s Leadership Hits Back at the SEC
Ripple’s CEO, Brad Garlinghouse, and Chief Legal Officer, Stuart Alderoty, have been vocal in their criticism of the SEC’s latest move to appeal. Garlinghouse, in a post on X (formerly Twitter), slammed the agency for prolonging a case that he claims has failed to protect investors. He emphasized that Ripple had already secured victories on key points and that XRP’s classification as a non-security remains intact.
Alderoty shared Garlinghouse’s sentiments, accusing the SEC of engaging in “litigation warfare” against the cryptocurrency sector. He suggested that the SEC’s approach has been misguided under its current leadership, arguing that the regulator is more focused on dragging the case out than adhering to established legal standards.
The Road Ahead: SEC’s Full Appeal in Motion
While the SEC’s attempt to file an interlocutory appeal was previously denied, the full appeal process now takes center stage. It could be months before the actual appeal is filed, and Ripple has signaled that it may also pursue a cross-appeal. The stakes are high, with Ripple’s $125 million fine, ordered by the court in August 2023, still pending enforcement until the appeal concludes.
In a surprising twist, the SEC’s Enforcement Director resigned just hours before the appeal was announced, sparking speculation about the internal tensions surrounding the regulator's ongoing litigation.
Ripple’s Role in the Future of Crypto Finance
Despite the legal uncertainty, Ripple remains a key player in the cryptocurrency world. Its XRP token, central to cross-border payments on the XRP Ledger (XRPL), continues to see institutional interest. On October 2, 2024, Bitwise filed an application to list a spot XRP ETF, demonstrating the growing demand for regulated access to XRP.
Ripple’s leadership has positioned the company as a pioneer in the industry, undeterred by regulatory hurdles. As the legal battles unfold, Ripple’s role in shaping the future of decentralized finance and real-world asset tokenization is likely to grow, making its ongoing case a landmark for both the SEC and the cryptocurrency landscape.