The SEC again asserts that XRP should be regulated as a security.
The SEC has filed an opening brief to appeal a ruling by the US District Court regarding XRP’s classification. In July 2023, Judge Analisa Torres ruled that XRP sales on exchanges were not securities, while sales to institutional investors were. Following this, Ripple was ordered to pay a $125 million penalty for its institutional sales.
The SEC’s appeal challenges the court’s distinction between retail and institutional sales, arguing that both should be classified as investment contracts under the Howey test. The SEC claims Ripple’s sales, exceeding $2 billion, violated federal securities laws as unregistered investment contracts.
The SEC emphasizes that Ripple’s marketing efforts aimed to boost XRP’s price, leading all investors to expect profits based on Ripple’s actions. The regulator argues that the court’s differentiation between “sophisticated” institutional investors and “less sophisticated” retail investors contradicts the Howey test’s objective standard.
Additionally, the SEC disputes the court’s finding that XRP given to employees and partners did not meet the “investment of money” requirement. The SEC argues that receiving valuable services is equivalent to monetary payment, thus satisfying this requirement.
If the SEC’s appeal is successful, the case will return to the district court for further actions against Ripple and its executives. The SEC is also seeking additional remedies, which may include increased penalties.
This brief comes at a time of potential changes in the SEC under the incoming Trump administration. Industry experts anticipate that legal actions initiated under current SEC Chair Gary Gensler may face dismissal or settlement. The new administration may focus on reforming crypto regulations and adopting more crypto-friendly policies, possibly revising the SEC’s enforcement approach.
Recently, the SEC Chair Gary Gensler said “Bitcoin is a highly speculative asset, but 7 billion people want to trade it. Just like we had gold for 10,000 years, we have Bitcoin.”
