SEC Disagrees with Court Ruling on XRP

The U.S. Securities and Exchange Commission (SEC) argues that an earlier district court ruling mistakenly decided that certain XRP sales to retail investors did not breach securities laws.

In a brief filed on Wednesday, the SEC contested the U.S. District Court for the Southern District’s previous judgment, requesting the U.S. Court of Appeals for the Second Circuit to “vacate” that ruling.

The SEC stated, “The district court reasoned that institutional investors reasonably expected profits from the efforts of others because Ripple represented that its efforts would increase the price of XRP. But the district court erroneously found that retail investors did not have that same expectation because they purchased XRP through crypto asset trading platforms and thus did not know if the seller was Ripple, a Ripple affiliate, or someone else.”

In 2020, the SEC alleged that Ripple raised $1.3 billion through XRP sales deemed to be unregistered securities. A year prior, Judge Analisa Torres ruled that some of Ripple’s XRP sales, called programmatic sales, did not violate securities laws due to a blind bid process. However, she ruled that direct sales to institutional investors were indeed securities, leading to a $125 million fine against Ripple in August.

In October 2024, the SEC appealed, claiming the district court’s decision contradicted “decades of Supreme Court precedent and securities laws.” The agency referenced the Howey Test, established in a 1946 Supreme Court case, which determines if transactions qualify as investment contracts.

According to the SEC, Ripple had consistently attempted to boost the demand for XRP through public statements aimed at raising its price. The agency noted that all XRP investors—retail and institutional—could reasonably expect profits based on Ripple’s promotional efforts.

The lawsuit against Ripple originated during former Chair Jay Clayton’s tenure and continued under Chair Gary Gensler, who plans to leave the position on Jan. 20, coinciding with Trump’s inauguration. Future proceedings may shift under new leadership, with Trump appointing crypto-friendly Paul Atkins as the new SEC head.

Stuart Alderoty, Ripple’s chief legal officer, dismissed the SEC’s lawsuit as “just noise,” asserting that the appeal rehashes previously failed arguments that may be abandoned by the incoming administration. He stated, “We’ll respond formally in due time.”