Ripple Labs has filed a Form C cross-appeal with the U.S. Court of Appeals for the Second Circuit as part of its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). The company is seeking a partial reversal of a previous ruling regarding the sale of certain XRP tokens to institutional investors, which deemed them securities and therefore subject them to a $125 million fine from the court. .
Ripple Chief Legal Officer Stuart Alderotti said the appeal does not challenge XRP’s non-securities status, as declared in the aforementioned landmark court ruling in July. Ta. The above cross-appeal challenges the district court’s interpretation of the Securities Act of 1933 regarding XRP sales.
This discussion revolves around the meaning of the term “investment contract,” which typically involves the extinguishment of the seller’s post-contractual obligations or the buyer’s right to profits generated from the seller’s efforts. .
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The company claims it is not selling XRP at the request or account of a buyer. None of these conditions apply to the company’s XRP sales, and the court’s ruling is too broad in its interpretation of securities.
Ripple also disputes the court’s use of the Howie test, the court’s 1946 standard for classifying transactions as securities. According to the company, the court did not properly understand the “investment of funds” and “joint venture” portions of the Howey framework.
Additionally, XRP operates in a decentralized environment where investor returns are not entirely based on activity, making XRP ineligible for securities classification used by courts.
Ripple’s fair notice defense challenges SEC authorities
Ripple has also criticized the SEC’s approach, particularly calling for clear regulatory guidance for companies. The company also claims it could have deliberately ignored the rules, but only if it had been given proper instructions.
If Ripple’s fair notice defense is upheld, it would encourage the continuation of a problematic precedent of regulatory ambiguity in the crypto industry, with fair notice being the only requirement for enforcement.
Jeremy Hogan, a pro-XRP lawyer, said that if Ripple’s fair notice claims were successful, the SEC’s enforcement power could be significantly reduced. The fact that regulators may provide clearer guidance to crypto companies if this case results in the company’s favor could also help shape future transformative enforcement legislation. There is.
This position makes clear that Ripple believes regulators should disclose guidance to facilitate compliance. Ripple is also objecting to a court injunction ordering the company to comply with the law in a way Ripple calls ambiguous.
Ripple says the lack of specific guidelines makes compliance difficult, and the competition poses legal risks and hinders operational clarity. The company’s legal team believes that such a sophisticated injunction provides a more accurate standard for the company and the industry.
SEC appeals XRP sale decision
At the same time, Ripple is facing an appeal from the SEC in the Second Circuit challenging its own programmatic XRP sales and distributions to employees. The SEC is seeking to overturn Judge Annalisa Torres’ ruling that these sales did not constitute a securities violation.
The SEC alleges that Ripple executives Brad Garlinghouse and Chris Larsen facilitated the sale of unregistered XRP, a claim Ripple disputes. It’s all about the appeal. The SEC needs to expand its regulatory oversight of virtual currency trading.
If successful, the SEC lawsuit could have a ripple effect on future token sales across the industry, ahead of other digital assets being treated as securities. Additionally, the case also questions the scope of the SEC’s regulation and whether it extends to all digital assets, an idea that has drawn intense scrutiny.
XRP continues to garner interest in expanding into new markets, as Ripple has been discussing ETFs to back it in recent days. It’s worth noting that asset managers such as Bitwise and Canary Capital continue to show interest.
Clearly, continued widespread interest in XRP among industry participants further strengthens its legitimacy and widespread acceptance within the crypto economic space.
