Ripple Labs has once again topped the headlines after it recently announced that it will appeal a cross-appeal in its long-standing battle with the U.S. Securities and Exchange Commission. This new development will prove helpful for the defences of Ripple’s legal as the SEC readies its appeal, which was initially filed on October 2, 2024. The SEC challenged a July 2023 ruling in which it was determined that XRP, Ripple’s cryptocurrency, could not be considered a security classification that would come with several regulatory implications.
That followed a conclusion by the court that the sales of XRP by Ripple to the various exchanges were not run afoul of federal securities laws. The decision has been significant for Ripple Labs since it runs directly against the contention of the SEC that XRP was sold as an unregistered security. The SEC’s principal argument is that all cryptocurrencies, of which XRP falls, define a category of financial instruments for securities that should be regulated under exact regulatory requirements before they can sell their goods.
Ripple’s Strategic Move
Ripple Labs CEO Brad Garlinghouse appears to have spotted recent optimism on the cross-appeal. His company intends to seal the fate of the SEC so that it finally kills what he calls the “regulation-by-enforcement agenda” pursued by the SEC. He also attacked the chair of the SEC, Gary Gensler, and the agency at large for giving rules of law a low priority and failing to provide clear guidelines for various stakeholders in the industry in the United States. Such sentiments from Garlinghouse are reflective of far deeper frustration by the community at large of cryptocurrency with the approach taken by the SEC regarding the regulation of digital assets.
Ripple’s cross-appeal gives the company an opportunity to raise every point of argument in the developing legal case. Stuart Alderoty, Chief Legal Officer at Ripple Labs, described this move as a way of holding all options open as they move through what he characterized as complex legal terrain. This comes at a time when the SEC has been adamant over its position regarding the classification of the tokens under its purview as securities, as well as in keeping with the nuances argued out in the appeal from the SEC.
Legal Proceedings Ahead
Says Alderoty, citing sources, “The SEC lost on all the points of the case that matter to it, making the argument appealing.” He further adds that Ripple filed a cross-appeal to make sure nothing goes unaddressed. One of those things includes the critical assertion that “there cannot be an ‘investment contract’ without basic rights and obligations, which usually define a contract.”.
In appeals like this one, each side is to submit notices stating why each believes it should win, followed by detailed legal briefs. Now comes the appeal part of the proceedings for Ripple, which is The writing and filing of these briefs as the case goes forward. In the next few weeks, both Ripple and the SEC will lay out their respective positions, promises to be one of the most closely watched legal battles.
Implications for the Cryptocurrency Industry
Ripple Labs was actually the first lawsuit by the SEC in December 2020, where it argued that the company had made an unregistered securities offering based on its sale of XRP. The SEC case was premised on the idea that XRP is a security under U.S. law and the sales and solicitations had been done by Ripple and its executives without necessary registration worth as much as $1.3 billion.
Ripple countered that XRP does not qualify as a security under the Howey Test, which remains the legal definition for determining what is or isn’t a security. Ripple Labs has recently emerged victorious on several significant legal fronts, including one decided last March by Judge Sarah Netburn. That judgment distinguished XRP from Bitcoin and Ethereum, moving to recognize the utility and currency-like aspects of XRP.
This case has witnessed the courts order the release of sensitive material in the form of emails by the previous director of the SEC, William Hinman. He was the one who made public declarations regarding what makes Ethereum non-security. On July 13, 2023, Judge Analisa Torres declared that XRP is not a security as sold on exchanges to the public, a landmark ruling for Ripple Labs and the crypto industry as a whole.
However, what the court has decided is that sales of XRP by Ripple Labs to institutional investors were indeed a violation of securities law, and so the company has been ordered to pay $125 million in penalties. Despite the penalty, this ruling sets a precedent for US cryptos about how to properly classify those digital assets for future regulatory decisions. So, the current outcome of Ripple’s cross-appeal and SEC’s challenges would probably determine future U.S. cryptocurrency regulation.
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