Considering that the Securities and Exchange Commission (SEC) Chair Gary Gensler – the man many perceive as waging war on crypto – is set to resign on January 20, there was some uncertainty about whether the watchdog would file its appeal to the summary judgment in the Ripple case by the deadline.
Despite the many rumors the regulator would abandon the case under the imminent Trump administration, the SEC nonetheless filed its claim that the district court erred with its previous decision.
Specifically, the Commission argues in its opening statement that the district court made a series of mistakes when it absolved Ripple Labs of most of the accusations, finding some grounds for the unregistered securities offering charges only in the case of institutional investors and fining the company $125 million – significantly less than the requested $2 billion.
Why the SEC claims the previous ruling is wrong
In a nutshell, the SEC claims that the court’s finding that XRP sold to retail investors does not fit the parameters provided by the Howey Test is incorrect as the introduced dichotomy between sophisticated – institutional – investors and unsophisticated – retail – investors does not make sense.
Indeed, part of the ruling in Ripple’s favor is based on the notion that the general public could not have reasonably expected to make a profit as they could not have properly understood the situation due to the volume and diversity of promotional material related to XRP.
The watchdog, for its part, claims that the investing public would have, without a doubt, grasped the essence of the message given Ripple’s focus on promising to boost demand for and liquidity of the token.
Similarly, the regulator argues that, despite what the court found, a lack of knowledge about the actual origin of the received asset – who one is buying an asset from – does not negate the possibility an asset is part of an investment contract.
Finally, with regard to XRP granted to employees of Ripple, the SEC claims that previous legislature and decisions show in no uncertain terms that goods and services – such as labor done for a company – constitute an investment under the Howey Test, thus invalidating the conclusion that a lack of money investment negates the possibility of an investment contract.
Ripple Labs’ reacts to the SEC appeal
Ripple Labs’ reaction to the appeal can best be described as exasperated. CEO Brad Garlinghouse, for example, made an X post saying that what the SEC is doing is one form of insanity.
Simultaneously, Ripple’s CLO Stuart Alderoty described the watchdog’s arguments as ‘already failed’ and added the incoming Trump administration would likely abandon the case. Furthermore, he shared the company’s short fact sheet about the case, once more highlighting that XRP itself is not claimed to be a security.
Still, it is worth pointing out that the SEC’s appeal makes it clear, in no uncertain terms, that the case remains, at its essence, about unregistered security offerings as seen in copies of the statement such as the one provided by defense lawyer and former Federal prosecutor James K. Filan.
From 2013 through 2020, defendants Ripple Labs, Inc., Christian A. Larsen (Ripple’s co-founder, former CEO, and current chairman), and Bradley Garlinghouse (Ripple’s current CEO) together offered and sold over $2 billion of the crypto asset XRP as investment contracts, a type of security. However, because these offers and sales were not registered under the Securities Act of 1933, investors were deprived of the important disclosures that federal securities laws mandate when securities are offered and sold to the public. This left investors with only the inadequate information that Ripple unilaterally provided.
XRP price reaction to the SEC appeal
Finally, examining the cryptocurrency market itself, investors are either convinced that Ripple Labs’ defense is watertight or that the Trump administration is guaranteed to drop the charges.
XRP appears to have completely escaped the grip of the legal battle – a legal battle that kept the token depressed through most of the 2024 bull market – and has recently reached a new market capitalization all-time high (ATH).
XRP 30-day price chart. Source: Finbold
Additionally, XRP is close to recording a new price ATH as it is, at press time on January 16, trading at $3.07 after an 18.74% rise in the last 30 days.
Featured image via Shutterstock
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