Key Takeaways
- The SEC had submitted a Form C civil appeal, asking the court to review its decisions regarding Ripple’s XRP sales on digital asset exchanges
- the SEC is also scrutinizing the actions of Garlinghouse and Larsen, alleging they aided in these transactions.
The U.S. Securities and Exchange Commission (SEC) has filed an appeal against parts of the court’s decision in favor of Ripple Labs, challenging the ruling on the sales of its cryptocurrency, XRP. On October 17, Ripple’s defense attorney, James Filan, shared that the SEC had submitted a Form C civil appeal, asking the court to review its decisions regarding Ripple’s XRP sales on digital asset exchanges, as well as personal sales by Ripple CEO Brad Garlinghouse and co-founder Chris Larsen.
The appeal comes after a ruling by Judge Analisa Torres in July 2023, where she concluded that XRP, when sold programmatically on digital asset exchanges, did not qualify as a security. This decision was seen as a significant victory for Ripple, as it separated XRP from traditional securities laws. However, the SEC is now seeking to overturn this part of the ruling, focusing on how Ripple conducted these sales.
Along with Ripple’s programmatic sales, the SEC is also scrutinizing the actions of Garlinghouse and Larsen, alleging they aided in these transactions. The appeal aims to examine their personal XRP sales and Ripple’s broader distribution of the cryptocurrency to employees and other entities.
The timing of the SEC’s appeal had been a source of speculation. Many in the legal and cryptocurrency communities wondered whether the SEC would submit its paperwork on time, with some believing that a delay could lead to the dismissal of the case. Despite this concern, the SEC filed its appeal on October 16, just before the deadline.
Ripple’s legal battle with the SEC began in December 2020 when the regulatory body sued the company, claiming that its XRP sales amounted to unregistered securities offerings. However, Judge Torres’s ruling in July was seen as a significant blow to the SEC’s case, as it allowed Ripple to continue its sales of XRP on exchanges without registering the token as a security.
In August, the court imposed a $125 million civil penalty on Ripple and prohibited the company from violating Section 5 of the Securities Act of 1933. Notably, the SEC is not appealing this financial penalty or the court’s decision to deny disgorgement.
Ripple’s Chief Legal Officer, Stuart Alderoty, reassured XRP holders after the appeal was filed, stating that the July ruling still stands. He emphasized that XRP’s legal status remains unchanged, and the ongoing case would not impact the cryptocurrency’s market potential. “The XRP ruling stands as the law of the land,” Alderoty said, signaling that Ripple remains confident despite the SEC’s continued efforts.
The appeal is now in the hands of the United States Court of Appeals for the Second Circuit, where it will be reviewed. The outcome could set a legal precedent for how digital assets are treated under U.S. securities law, impacting the broader cryptocurrency industry.
For now, the SEC’s focus appears to be on the method of XRP’s sales rather than its overall classification. According to Marc Fagel, a retired securities lawyer, the appeal was expected and focuses on the technicalities of how Ripple sold XRP rather than challenging its broader status as a cryptocurrency.
