Ripple Escalates SEC Battle, Submits Cross Appeal on XRP Ruling

Ripple Labs filed a Civil Appeal Pre-Argument Statement, or Form C, on October 25, marking a formal step in the company’s legal battle with the U.S. Securities and Exchange Commission (SEC). This document presents Ripple’s defense of its XRP token’s institutional sales case against the Southern District of New York’s previous ruling. Targeting important legal issues, the appeal asks the court to reconsider its earlier rulings.

Grounds for Appeal; Application of the Howey Test

One central issue Ripple disputes is the district court’s application of the Howey test to XRP transactions. Ripple argues that the court misinterpreted its XRP offerings as a traditional “investment of money in a common enterprise with a reasonable expectation of profits” solely from Ripple’s actions. This interpretation, Ripple claims, is a misfit for the nature of digital asset sales, particularly XRP, where expectations and responsibilities differ from conventional investments.

Ripple’s Chief Legal Officer Stuart Alderoty emphasized on X (formerly Twitter) that the appeal questions the legal basis on which XRP’s sales were evaluated, not XRP’s classification as a security. He explained, “The Appeals Court reviews the record that has already been set…and we have a great record.” Ripple’s position asserts that the review should focus on the existing legal record without the need for new evidence.

Ripple also raised issues concerning fair notice, contending that the SEC’s guidance on digital assets remains inconsistent and unclear. The lack of precise regulatory direction, Ripple claims, has disadvantaged crypto firms, leaving them in a regulatory gray area. This, Ripple argues, infringes upon their rights, as firms should be able to anticipate regulatory standards with a degree of confidence.

Additionally, the appeal challenges whether an investment contract requires enforceable obligations, suggesting that the court’s interpretation of XRP as a security mischaracterizes its structure. Ripple’s filing argues that the SEC’s approach imposes unnecessary restraints that conflict with Section 5 of the SEC Act of 1933.

Ripple’s Form C follows a similar filing from the SEC on October 18, where the SEC requested a review of XRP’s sale on exchanges and transactions by Ripple executives. Alderoty commented that this case represents a broader struggle for regulatory clarity in the crypto space, asserting, “The SEC is trying to create distraction and confusion.”