SEC Files Last-Minute Appeal in Ripple Case—Why the XRP Army is Outraged

The U.S. Securities and Exchange Commission has filed a last-minute appeal in its ongoing legal sparring with Ripple Labs, seeking to reverse parts of a summary judgment delivered by U.S. District Judge Analisa Torres more than a year ago.

Torres’ July 2023 ruling partially favored Ripple by concluding that the company’s sales of XRP to retail investors on digital asset platforms did not violate U.S. securities laws. 

The court found that these transactions did not meet the legal criteria for an investment contract, dealing a blow to the SEC’s broader efforts to regulate cryptocurrency sales under existing securities laws.

Filing in the U.S. Court of Appeals for the Second Circuit late Thursday, the SEC does not contest the decision that XRP sales to retail investors through exchanges are not securities. Instead, the agency is focusing its challenge on other key aspects of the ruling.

The appeal targets the court's decision that Ripple's offers and sales of XRP on digital asset trading platforms, as well as personal sales by Ripple executives Bradley Garlinghouse and Christian Larsen, did not constitute securities violations. 

The agency is also contesting the ruling that Ripple's distributions of XRP in exchange for non-cash consideration were not in breach of securities laws.

Ripple's institutional sales of XRP to large investors were previously found to have violated securities laws by the U.S. Southern District Court, which imposed a $125 million civil penalty on the San Francisco-based firm.

The SEC's appeal, which will be reviewed de novo, will allow the appellate court to reconsider the lower court’s interpretation of securities laws in relation to XRP sales on digital platforms and non-cash transactions. 

De novo means that the appellate court will reconsider these legal issues from scratch without deference to the district court's interpretations. Ripple’s victory regarding XRP's retail sales, however, remains intact and is not part of the appeal.

While it was widely anticipated that the SEC would file its notice of appeal on October 2, users have taken to social media to decry what they view as the agency missing a 14-day window for filing its Form C.

A Form C, in the context of appellate court procedures, is used by the appellant—in this case, the SEC—to provide basic information about the appeal and the lower court's decision.

Filing is mandatory and must be done within 14 days of filing the notice of appeal, according to the form’s own legalese. It's a date that some have accused the agency of missing, as the document is dated October 16, while the Second Circuit’s docket shows a filing for October 17. 

Decrypt attempted to contact the SEC on that point but has so far received no response. A spokesperson for Ripple did not answer questions relating to the deadline window, instead pointing Decrypt to a social media post by the firm’s chief legal officer, Stuart Alderoty.

“No surprises here — once again, it’s been made clear. The Court’s ruling that “XRP is not a security” is NOT being appealed. That decision stands as the law of the land,” Alderoty tweeted Thursday.

“Stay tuned for Ripple’s Form C to be filed next week,” the executive added.