Ripple Files Cross-Appeal Against SEC in Landmark XRP Case

Ripple Labs has filed a cross-appeal in the U.S. Court of Appeals for the Second Circuit. Pushing back on key elements of a pivotal ruling in its ongoing legal battle with the SEC. This move, announced a week after the SEC filed its own appeal. Adds another chapter to the high-profile case, with major implications for digital asset regulation in the U.S.

Ripple’s Arguments in Cross-Appeal

Ripple’s Thursday filing lists four primary issues for the court’s consideration, with the primary contention being the classification of institutional XRP sales as unregistered securities offerings. A ruling that led to a $125 million fine. Their legal team, led by Stuart Alderoty, argues that the U.S. District Court for the Southern District of New York misapplied the 1933 Securities Act definition of an “investment contract.”

Ripple contends that institutional XRP sales do not meet the criteria for an investment contract since they do not impose post-sale obligations on the seller nor assure buyers a right to profit from the company’s activities. Additionally, Ripple’s appeal raises the issue of regulatory uncertainty. Pointing out that the SEC failed to give adequate notice that XRP sales might violate securities laws.

Key Points from Ripple’s Filing

• Investment Contract Definition: Ripple argues the court’s application of this term was flawed. Contending that the 1933 Securities Act was misinterpreted.
• Regulatory Clarity: Ripple’s appeal suggests the SEC has not established clear guidelines on digital assets. Which Ripple claims has left companies guessing about compliance requirements.
• Fair Notice: Ripple emphasizes that the SEC’s lack of clarity on XRP created a significant legal question on how securities laws apply to cryptocurrencies.

“The Appeals Court reviews the record that has already been set and we have a great record,” Alderoty said, noting that the SEC cannot introduce new evidence, thus avoiding some of the procedural “drama” of the earlier litigation.

The SEC’s Appeal and Remaining Issues

The SEC’s appeal focuses on Ripple’s programmatic sales on digital exchanges and distributions to employees, which the SEC alleges were also unregistered sales. The agency questions whether Ripple executives Brad Garlinghouse and Chris Larsen violated securities laws by offering unregistered sales of XRP.

Despite these appeals, the SEC has not contested the district court’s ruling that XRP itself is not a security—a decision widely seen as a significant win for Ripple and the crypto industry at large.

Looking Ahead

The appeals process, expected to extend into 2024, has drawn substantial attention due to its potential impact on crypto regulation. A ruling on these appeals could set crucial precedents for digital asset classification and compliance, particularly as U.S. regulators move to tighten oversight on the industry.