The U.S. Securities and Exchange Commission (SEC) has filed an appeal challenging a district court ruling that found Ripple Labs’ XRP sales to be non-securities transactions. This lawsuit, originally filed in December 2020, questions whether Ripple’s sales of XRP to retail investors violate federal securities laws.
The SEC’s appeal, submitted on January 15, 2025, argues that all transactions involving XRP, regardless of the seller or method of sale, should be considered investment contracts under the Howey Test. The commission disagrees with Judge Analisa Torres’ July 2023 ruling, which found that XRP’s programmatic sales to retail investors through cryptocurrency exchanges did not constitute violations of securities laws.
The SEC asserts that Ripple’s promotional activities created the perception that XRP buyers, both institutional and retail, expected profits from the company’s efforts. The commission contends that this expectation of gain makes XRP a security.
In its filing, the SEC claims Ripple’s actions, including information dissemination through its website and social media, were designed to increase demand for XRP. This, the SEC argues, led both retail and institutional investors to treat the token as a security tied to Ripple’s growth. Furthermore, the SEC contests the court’s exclusion of XRP received in non-cash transactions, such as employee compensation and business incentives, from the scope of securities laws.
Ripple, however, maintains that XRP is a digital currency and not a security. The company argues that its sales of XRP cannot be classified as investment contracts under U.S. law. Ripple’s Chief Legal Officer, Stuart Alderoty, dismissed the SEC’s appeal, calling it a rehash of previous arguments that were already rejected in court. He suggested that the SEC’s case would lose momentum with the upcoming leadership change as Gary Gensler prepares to step down as SEC Chair.
This legal battle began in 2020 when the SEC accused Ripple of raising $1.3 billion through unregistered XRP sales. While the July 2023 ruling found that Ripple’s direct XRP sales to institutional investors violated securities laws, it also concluded that programmatic sales of XRP, such as those made to retail investors through exchanges, did not.
Despite the ongoing legal challenges, XRP’s price surged to $3, marking its highest level since 2018. The cryptocurrency’s rally reflects growing optimism about a potential shift in regulatory stance as the SEC’s leadership changes under the incoming administration.
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