On October 25, Ripple Labs filed a Civil Appeal Pre-Argument Statement, also known as Form C, in the U.S. Court of Appeals for the Second Circuit to challenge a recent ruling by the U.S. Securities and Exchange Commission (SEC) that classified Ripple’s institutional XRP sales as securities transactions.
Ripple’s legal team asserts that the district court’s application of the Howey test, which determines whether a transaction qualifies as an investment contract, was flawed in this case.
“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 classified as a security,” said Stuart Alderoty, Ripple’s Chief Legal Officer.
Ripple’s appeal comes after a July 2023 ruling by U.S. District Judge Analisa Torres, which partially favored Ripple by clarifying that XRP is not considered a security when sold programmatically on exchanges. The same ruling imposed a $125 million penalty on Ripple, holding that its direct institutional sales of XRP constituted securities transactions.
Ripple is now challenging this part of the ruling through a request for a de novo review, which allows the appeals court to reassess the case independently of the district court’s conclusions.
Alderoty also pointed to the SEC’s broader regulatory approach, saying it was an effort to “create distraction and confusion for Ripple and the industry.”
This appeal represents a pivotal legal stance with potential implications for the broader digital asset industry. It reaffirms the limitations of the Howey test on cryptocurrency sales and could influence future rulings on digital assets and securities classifications.
The U.S. Securities and Exchange Commission (SEC) is a government agency tasked with regulating securities markets, safeguarding investors, and promoting fair and transparent financial practices.
The SEC’s fines against the crypto industry increased by 3018% in 2024, rising from $150.26 million in 2023 to $4.68 billion, according to a Social Capital Markets report.
Social Capital Markets reports that since 2013, the SEC has issued over $7.42 billion in fines to crypto firms and individuals, with 63% of this total occurring in 2024.