SEC Appeals Ripple Decision, Claims XRP Retail Sales are Securities

• In the latest development in the XRP lawsuit, the SEC has filed its opening brief in the appeal against Ripple, aiming to overturn the 2023 ruling that determined XRP is not a security.
• As Donald Trump sets out to overhaul the SEC, experts anticipate that such changes could improve XRP’s prospects, with the token reaching $3 for the first time since 2018.

The U.S. Securities and Exchange Commission (SEC) has intensified its legal battle with Ripple Labs, filing arguments on January 15 to appeal a federal court decision that partially ruled against the agency. The appeal aims to challenge Judge Analisa Torres’ 2023 ruling, which concluded that XRP, Ripple’s native cryptocurrency, is not a security, at least in relation to programmatic sales on digital asset exchanges.

SEC’s Arguments in the Appeal

In its filing to the Second Circuit Court of Appeals, the SEC argued that the lower court made an error in ruling that XRP sales to retail investors did not constitute securities offerings. The agency claimed that the court’s distinction between institutional and retail sales weakens the application of the Howey test, the legal standard used to determine whether a transaction qualifies as an investment contract, and therefore a security. The Howey test examines key factors such as the investment of money, the expectation of profits, and reliance on the efforts of a promoter or third party.

The regulator stressed that Ripple’s $2 billion worth of XRP sales to retail customers violated securities laws, as these investors could have reasonably expected a profit based on Ripple’s marketing strategies and business dealings. Moreover, the SEC pointed out that XRP tokens distributed as employee compensation or in business transactions were incorrectly excluded from being recognized as securities.

The SEC’s filing urged the appeals court to reverse Judge Torres’ decision and reclassify all XRP sales as unregistered securities offerings. If successful, this would result in an updated judgment against Ripple. The SEC initially filed its lawsuit against Ripple Labs in December 2020, alleging that the company conducted an unregistered securities offering by selling XRP.

SEC’s Appeal Draws Backlash

In an X post, Ripple’s Chief Legal Officer Stuart Alderoty, dismissed the SEC’s arguments as repetitive and expressed confidence that the incoming administration would likely drop the case. He described the lawsuit as “background noise” and highlighted Ripple’s optimism about a new era of pro-innovation regulation.

Ripple CEO Brad Garlinghouse also criticized the SEC in a January 15 post, accusing the watchdog of repeating failed strategies. Both leaders remain confident that Ripple will prevail as regulatory approaches shift under the new administration.

Gary Gensler’s four-year tenure as SEC Chair is set to end on January 20, coinciding with Donald Trump’s inauguration. Reports indicate that the incoming administration, with Paul Atkins expected to assume the role of SEC Chair, may withdraw several of the agency’s ongoing lawsuits against cryptocurrency firms.

Amid these developments, XRP is trading at $3.09, inching closer to it’s all-time high of $3.40 reached seven years ago. The token has seen a 7.87% increase in the last 24 hours and a 33% surge over the past week, now sitting just 9.49% below its historic peak. The strong price performance reflects growing investor confidence in XRP, even as the legal battle with the SEC continues.