The three-year legal dispute between the US Securities and Exchange Commission (SEC) and Ripple Labs saw a pivotal verdict a month ago. A court ruled that the XRP token itself shouldn't be classified as a security. Now, the SEC has filed an appeal against the court's decision.
Around Christmas 2020, the US Securities and Exchange Commission (SEC) filed a landmark lawsuit against Ripple. The agency claimed that the company had offered unregistered securities to US customers through the public sale of the XRP cryptocurrency. After an intense legal battle and nearly $200 million in legal fees, a US court delivered the initial ruling in July 2023. The SEC seeks to have the decision, which only partially classified XRP sales as securities offerings, reviewed by a federal appeals court.
Subscribe to our newsletter
The best articles of the week, directly delivered into your mailbox.
XRP: a security or not?
The original SEC lawsuit accused Ripple Labs, CEO Brad Garlinghouse, and co-founder Chris Larsen of raising over $1.3 billion illegally through the sale of XRP in an unregistered securities offering. According to US District Judge Analisa Torres, the public offering of the XRP token ("Programmatic Sales") was, however, consistent with federal securities laws. The judge only categorized sales to institutional actors as unregistered securities offerings. This marked a significant partial victory for Ripple in its long-standing legal battle with the SEC.
However, after careful consideration, the regulatory body has appealed the ruling. An appellate review could clarify legal questions that have "substantial grounds for difference of opinion." According to the SEC, the outcome of an appeals process would have significant implications for the enforcement of securities laws and numerous other lawsuits.
"In particular, the SEC seeks review of the Court's decision that the Defendants' 'programmatic sales' and sales of XRP to buyers on digital asset trading platforms, and Ripple's 'other distributions' of XRP in exchange for labor and services, do not constitute offers or sales of securities under the [Howey test]." - SEC court filing
A precedent for crypto regulation in the US
The outcome of the Ripple case is crucial as the SEC had already classified over a dozen other cryptocurrencies as unregistered securities. Led by Chairman Gary Gensler, the agency generally holds the view that all crypto assets, except Bitcoin, fall under its jurisdiction. Prior to the March lawsuit, the SEC had called on US crypto exchange Coinbase to halt trading for all of the over 200 offered cryptocurrencies (excluding Bitcoin).
Torres must now decide whether the SEC can appeal her ruling. This would undoubtedly extend the proceedings and pave the way for further review of the original decision. As per the timeline outlined in the document, Ripple's response is due on August 16th, with the SEC submitting its opening brief two days later. The appeal would be heard before the US Court of Appeals for the Second Circuit.
