Ripple SEC Lawsuit: US SEC Challenges ‘XRP Is Not A Security’ Ruling By Judge Torres

Ripple SEC Lawsuit Update: The U.S. Securities and Exchange Commission (SEC) has filed an opening brief in appeals in the lawsuit, challenging a district court’s ruling on Ripple Labs’ XRP sales. The case, originally filed in December 2020, centers on whether Ripple’s sales of XRP to retail investors constitute unregistered securities transactions.

US SEC Argue XRP Is A Security in Ripple Lawsuit

In its appeal opening brief filed in Ripple vs SEC lawsuit on Wednesday evening, the US SEC stated that Judge Analisa Torres made a mistake in the ruling issued in July 2023 that XRP is not a security in itself. The district court had held that Ripple’s programmatic sales of XRP to retail investors through cryptocurrency exchanges did not violate federal securities laws.

The SEC claims that every XRP sale, no matter which particular seller has conducted the sale or how the sale was made, constitutes an “investment contract” in terms of the Howey Test. The agency argues that Ripple’s promotion activities gave a perception that investors, including retail buyers, were likely to make profit out of the XRP.

“The district court’s decision that retail buyers could not have reasonably expected gains from Ripple’s efforts because they purchased XRP anonymously through crypto platforms was in error,” the US SEC stated in its principal brief. It also noted that representations made by Ripple for promotion of XRP were equally as much available to institutional and retail investors.

Ripple Faces Allegations of Boosting XRP Demand

In the SEC filing, the agency alleges that Ripple used the sales of XRP to inflate its demand and value in the market. The SEC alleged that Ripple published information regarding the token, on its website, social media, and in the media, with the aim of generating buy orders and, thus, profit expectations among investors.

The agency claims that these actions made both institutional and retail investors treat XRP as a security that relies on Ripple’s growth. Further, the SEC also disputed the court’s ruling to exclude XRP received in non-cash transactions including in employee compensation and business incentives from securities laws.

Nevertheless, Ripple continues to argue that XRP is a digital currency and not a security, and therefore, the sales of XRP cannot be considered as an investment contract under the law. Amid the ongoing case, defense attorney James K. Filan earlier noted that both Ripple and the SEC submitted a stipulation regarding the ongoing cross-appeals process. According to Filan, both parties have agreed to file a deferred appendix 21 days after the appellee’s opening brief is served.

Ripple CLO Dismisses SEC Arguments

Ripple’s Chief Legal Officer, Stuart Alderoty, called the SEC’s appeal “a rehash of already failed arguments.” In an X post, Ripple CLO Stuart Alderoty suggested that the case would likely lose momentum under the next SEC administration as Chair Gary Gensler prepares to step down on January 20, 2025.

Ripple has argued throughout the case that XRP should not be classified as a security under U.S. law. The company points to the district court’s partial ruling, which stated that programmatic sales of XRP did not meet the Howey Test criteria.

The lawsuit began in 2020 when the US SEC accused Ripple of raising $1.3 billion through unregistered XRP sales. In July 2023, Judge Analisa Torres ruled that Ripple’s direct XRP sales to institutional investors violated securities laws but found that programmatic sales and distributions did not.

Despite the ongoing Ripple case, XRP’s price has surged recently, reaching $3, for the first time since 2018 amid projections of a rally to $6. This price increase reflects optimism about potential regulatory changes under the incoming SEC leadership.