Highlights:
- Ripple files cross-appeal against SEC’s challenge to XRP ruling.
- The court will now consolidate the SEC and Ripple’s appeals into one case.
- The legal action may affect the regulatory framework for digital assets in the US.
Ripple Labs submitted a notice of cross-appeal to the US Court of Appeals for the Second Circuit on October 10, continuing its ongoing legal dispute with the Securities and Exchange Commission (SEC). Ripple’s cross-appeal follows the SEC’s appeal of its lawsuit against Ripple, filed earlier this month. The SEC seeks to challenge Judge Analisa Torres’ August 7 ruling that programmatic sales of XRP to retail investors did not violate securities laws.
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The two appeals will now be consolidated into one case, prolonging the legal process that has drawn significant attention from the crypto industry since the SEC filed its complaint in 2020. Ripple’s appeal challenges the final judgment that mandates the company to pay $125 million in civil penalties for its institutional XRP sales. While this amount is considerably lower than the SEC’s initial demand of nearly $2 billion, it is still significantly higher than Ripple’s proposed settlement of $10 million.
The Court of Appeals will review the SEC’s original appeal and Ripple’s cross-appeal to assess whether the August 7 decision contained legal or procedural errors.
Four-year Legal Battle
In 2020, the SEC filed a lawsuit against Ripple Labs, alleging that it sold its cryptocurrency token, XRP, as an unregistered security. Two years later, in 2023, Judge Analisa Torres ruled in favor of Ripple, stating that XRP is classified as a security only when sold to institutional investors.
In August 2024, Judge Torres prohibited Ripple from engaging in any future violations of securities laws and denied the SEC’s request for Ripple to return its sales proceeds. At that time, the SEC sought over $876 million in disgorgement, more than $198 million in interest, and an $876 million civil penalty. Ripple, however, maintained that its maximum liability should be limited to $10 million.
The court ultimately imposed a civil penalty of $125 million on Ripple. The U.S. SEC appealed this decision on October 2, claiming the district court’s ruling contradicts years of Supreme Court precedent and securities laws. The SEC argues that XRP should be classified as a security for all sales, encompassing both institutional and retail transactions. It insists that the classification of XRP should be consistent, regardless of the transaction type.
#XRPCommunity #SECGov v. #Ripple #XRP BREAKING: The @SECGov has filed a Notice of Appeal of Judge Torres’s Ruling. pic.twitter.com/j8bLIZQ5LT
— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) October 2, 2024
SEC Appeal Relies on Weak Arguments, Says Ripple CLO
Ripple’s Chief Legal Officer, Stuart Alderoty, shared on social media that the purpose of the cross-appeal filing is to ensure that “nothing is left on the table.”
The SEC lost on all key points—that’s why they appealed. Today, Ripple filed a cross-appeal to ensure nothing’s left on the table, including the argument that there can’t be an "investment contract" without there being essential rights and obligations found in a contract.
— Stuart Alderoty (@s_alderoty) October 10, 2024
He also noted that the SEC is likely to argue that XRP sales on exchanges and token distributions to employees and developers qualify as securities. He is confident that the Ripple team will successfully defend their position in court.
Alderoty stated:
“The SEC lost on all key points—that’s why they appealed. Today, Ripple filed a cross-appeal to ensure nothing’s left on the table, including the argument that there can’t be an “investment contract” without there being essential rights and obligations found in a contract.”
Ripple CEO Brad Garlinghouse is confident that his team will prevail in the appeal, believing a victory will end the SEC’s “regulation-by-enforcement” approach. In a statement after Ripple’s latest filing, Garlinghouse claimed that the SEC is more focused on creating disruption and harm to the industry than providing clarity for market participants.
He said:
“With our cross-appeal today, we’re looking forward to sealing the SEC’s fate and finally putting an end to the SEC’s regulation-by-enforcement agenda. Ripple was the industry leader in the first go-round in court and we look forward to leading the way in this round as well.”
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