SEC Appeals Ruling on XRP Classification, Seeks to Overturn Decision

The United States Securities and Exchange Commission (SEC) has filed an opening brief in its appeal against a previous court ruling that found XRP, the native cryptocurrency of the Ripple network, was not a security when sold to retail investors. The SEC is seeking to overturn the district court’s ruling and classify all XRP sales as unregistered securities offerings.

Background of the Case

In July 2023, Judge Analisa Torres of the US District Court ruled that XRP sales on exchanges were not securities, but sales to institutional investors were. Following this ruling, a final judgment in August ordered Ripple to pay a $125 million civil penalty for institutional sales of XRP. The SEC has since decided to appeal the court’s decision, aiming to challenge the ruling that secondary market sales of XRP tokens were non-securities.

SEC’s Argument

In the brief, the SEC contends that both institutional and retail XRP sales meet the criteria for investment contracts under the Howey test. The regulator argues that Ripple’s sales of XRP, totaling over $2 billion, were unregistered investment contracts and violated federal securities laws. The SEC also disputes the district court’s distinction between institutional and retail investors, arguing that this distinction contradicts the Howey test’s objective standard.

Key Points of the SEC’s Argument

* The SEC argues that Ripple’s public marketing campaign promoted its efforts to increase XRP’s price, leading all investors to reasonably expect profits based on Ripple’s actions.
* The regulator claims that the district court’s distinction between “sophisticated” institutional investors and “less sophisticated” retail investors was invalid and violated the Howey standard.
* The SEC also disputes the district court’s finding that Ripple’s transactions involving non-cash consideration, including XRP paid to employees and business partners, do not qualify as investment contracts.

Implications of the Appeal

If the SEC is successful in its appeal, the case would return to the district court, where a judge would decide what further actions to take against Ripple and whether its top executives helped break securities laws when XRP was sold to investors. The SEC is also seeking “additional remedies,” which could include increased penalties.

Crypto Industry Impact

The appeal comes amid growing optimism about the potential overhaul of crypto policies under the incoming Trump administration. Industry leaders and experts see a strong chance that legal enforcement actions initiated under SEC Chair Gary Gensler’s leadership could reach a dismissal or settlement. The SEC may also rescind some existing guidance and revise the enforcement approach it has taken over the past few years, potentially leading to more crypto-friendly policies.

Conclusion

The SEC’s appeal against the district court’s ruling on XRP classification has significant implications for the crypto industry. If successful, the appeal could lead to increased regulation and penalties for Ripple and other crypto companies. However, the potential overhaul of crypto policies under the incoming Trump administration could also lead to more favorable conditions for the industry. As the case continues to unfold, it is essential to monitor the developments and their potential impact on the crypto market.

Source: Cryptobriefing.com

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