SEC Challenges Court's XRP Ruling in Formal Appeal

The U.S. Securities and Exchange Commission (SEC) has officially filed an appeal against a recent court ruling that favored Ripple Labs, according to a recent report from The Block. The case will reportedly extend to mid-2025.

On Thursday, the SEC submitted a “Civil Appeal Pre-Argument Statement,” or Form C, to the U.S. Court of Appeals for the Second Circuit. This marks the next step in its attempt to overturn portions of the previous ruling made by the U.S. District Court for the Southern District of New York.

Ripple Labs, along with its top executives Brad Garlinghouse and Chris Larsen, has been at the center of the SEC’s lawsuit, which began in 2020. The regulator accuses Ripple of raising $1.3 billion by selling XRP without registering it as a security. 

A Split Ruling Sparks Appeal

In July 2023, U.S. District Judge Analisa Torres delivered a ruling that resulted in partial victories for both the SEC and Ripple. The court found that Ripple’s XRP sales on digital asset platforms, known as programmatic sales, did not qualify as unregistered securities. 

However, the court also determined that Ripple’s direct sales of XRP to institutional investors violated securities laws.

Additionally, the court ruled that the personal XRP sales made by Garlinghouse and Larsen did not constitute unregistered securities, nor did Ripple’s non-cash XRP distributions made in exchange for services breach the Securities Act of 1933. Following the judgment, Ripple was ordered to pay $125 million in fines, while the court prohibited further violations of the Securities Act.

Despite the favorable aspects of the ruling for Ripple, the SEC has challenged several key findings. 

In its appeal, the SEC argues that the district court erred in concluding that programmatic XRP sales on digital asset platforms were not unregistered securities. The agency also disputes the ruling that Garlinghouse’s and Larsen’s personal XRP sales did not violate securities laws, as well as the decision regarding Ripple’s non-cash XRP distributions.

Legal Grounds for Appeal

The SEC’s filing requests that the appeals court conduct a “de novo” review of the district court’s ruling. A de novo review would allow the court to reconsider the legal basis for the decision without being bound by the district court’s conclusions. 

The regulator believes that the ruling contradicts decades of legal precedent established by the Supreme Court regarding securities laws.

Ripple’s Chief Legal Officer, Stuart Alderoty, responded to the appeal on X, clarifying that the SEC’s move did not target the court’s decision that XRP is not a security when sold on digital trading platforms. 

“No surprises here—once again it’s been made clear. The court’s ruling that ‘XRP is not a security’ is NOT being appealed,” Alderoty said. 

Alderoty said, noting that the favorable aspects of the ruling remain intact.

Ripple’s Countermove: Cross-Appeal

In response to the SEC’s initial notice of appeal filed in early October, Ripple took the step of filing a cross-appeal to ensure that all aspects of the case are addressed. 

Alderoty explained that Ripple’s cross-appeal aims to cover any potential gaps left by the original court ruling, including challenging the notion that XRP could be considered an investment contract without the presence of explicit rights and obligations found in a contract.