The U.S. Securities and Exchange Commission (SEC) has filed an appeal against a US federal judge’s decision in its partially unsuccessful case against enterprise blockchain firm Ripple Labs, a move that has been heavily criticized by Ripple’s chief legal officer.
In a Jan. 15 filing with the Second Circuit Court of Appeals, the SEC said that the New York District Court erred in its ruling that XRP crypto token sales to retail investors did not qualify as unregistered securities offerings.
The regulator requested the appeals court to overturn Judge Analisa Torres‘ July 2023 decision and reclassify XRP digital token sales to retail investors as unregistered securities.
It also sought a revised judgment against Fintech firm Ripple Labs if the appeal is successful.
The SEC contended that XRP distributed as worker compensation and in business deals should have been classified as securities, which is contrary to the lower court’s findings.
This filing continues the SEC’s appeal process initiated in October of last year, following its partial loss in the lawsuit filed against Ripple Labs back in December 2020.
Judge Torres had stated that XRP was a security when sold to institutional investors but not when sold to retail investors, as the latter group had no knowledge of who was selling the digital tokens.
As part of its appeal, the SEC said that retail buyers of XRP likely anticipated profits based on Ripple’s marketing efforts, an assertion that aligns with the Howey test, which formally defines investment contracts.
The SEC has used this argument in several actions against crypto firms in the past.
Ripple CEO Brad Garlinghouse criticized the SEC’s approach in a Jan. 15 social media post, accusing the regulator of repeating failed arguments.
Ripple’s chief legal officer, Stuart Alderoty, dismissed the appeal as well, noting that it was “a rehash of already failed arguments” likely to be dropped by a future administration.
Reuters has noted that the SEC under a new administration may deprioritize litigation on non-fraud securities violations, potentially leaving cases like this unresolved.
Pro-crypto attorney Jeremy Hogan expressed skepticism about the strength of the SEC’s appeal.
He described the filing as “lackluster” and noted the SEC’s failure to present substantial evidence that retail XRP purchasers were aware of Ripple’s promises.
The appeals process could take months to conclude, with Ripple expected to file counterarguments.
The court may also opt to hear oral arguments before delivering a ruling.
Ripple has cross-appealed the portion of the lower court’s decision it lost, which included an order to pay a $125 million civil penalty.
Despite the SEC’s filing, XRP experienced a 10% price increase in the past 24 hours, reflecting wider gains across the Bitcoin and crypto markets.