The US Securities and Exchange Commission (SEC) has taken another step in its ongoing legal battle with Ripple Labs. On 17 October, the SEC filed an appeal aiming to reverse parts of a court decision made more than a year ago.
The decision in question was issued by US District Judge Analisa Torres, who ruled that Ripple Labs should pay a fine of $125 million for breaking federal securities laws when selling its cryptocurrency, $XRP.
However, the SEC had originally asked for a much larger amount of $876.3 million, along with additional penalties and interest.
The SEC’s new appeal focuses on certain aspects of the case, particularly Ripple’s sales of $XRP on exchanges and the actions of Ripple’s top executives.
This appeal does not challenge a key part of the court’s ruling, which determined that $XRP is not a security by default.
Why is the SEC appealing?
The legal battle between Ripple Labs and the SEC started when the agency accused Ripple of selling $XRP without following proper rules for securities (financial products like stocks or bonds).
In August 2023, Judge Torres ruled that Ripple did violate some securities laws, but not to the extent the SEC had claimed. As a result, the fine Ripple had to pay was far less than what the SEC wanted.
Judge Torres found that Ripple’s sales of $XRP through institutional channels violated securities laws, but she did not agree with the SEC’s claim that Ripple had committed fraud or engaged in more serious misconduct.
She also stated that the company’s actions did not cause significant harm to investors. This ruling led to a fine of $125 million rather than the much larger sum of over $1.9 billion in penalties and interest that the SEC had originally sought.
The SEC’s recent appeal targets Ripple’s $XRP sales on exchanges, distributions of $XRP to employees and others, as well as personal sales of $XRP by Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen. These were areas where the court had ruled in Ripple’s favour.
Legal expert MetaLawMan noted on social media: “The SEC is appealing the summary judgement ruling on: Ripple’s XRP sales through exchanges; Ripple’s distribution of XRP to employees and others; and Garlinghouse and Larsen’s sales of XRP on exchanges.”
Key ruling on XRP still stands
One important aspect of this appeal is that the SEC has chosen not to challenge the court’s decision that $XRP is not a security by default.
This part of the ruling was a major win for Ripple and for the wider cryptocurrency industry, as it limits the SEC’s ability to regulate $XRP and similar digital assets.
The court found that even though Ripple’s institutional sales of $XRP broke securities laws, the digital asset itself does not automatically count as a security.
Ripple’s Chief Legal Officer, Stuart Alderoty, made it clear that this part of the ruling still stands. He tweeted: “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.”
This ruling has since been used in other cases involving cryptocurrency projects and has created a significant legal precedent for the crypto industry.
The SEC’s appeal, however, does include claims against Ripple’s top executives. The agency argued that Garlinghouse and Larsen violated securities laws by personally selling $XRP.
It also questioned the court’s decision to rule in Ripple’s favour on several other key issues, including $XRP sales on exchanges and non-cash transactions where Ripple exchanged $XRP for services or goods.
The SEC has asked for these issues to be reviewed “de novo,” meaning they want the appeals court to take a fresh look at the case.
What happens next?
There was some confusion online about the SEC’s filing deadline, with reports that the agency might have missed it. However, the SEC met its deadline, which was set for 18 October.
Ripple now has one week to file its own appeal, which will respond to the SEC’s arguments. According to Stuart Alderoty, Ripple plans to file its Form C cross-appeal in the coming days.
After both the SEC and Ripple submit their appeals, they will agree on a schedule for further legal briefings.
The SEC has up to 90 days to submit its opening brief, in which it will lay out its legal arguments in detail.
Ripple will then have a chance to respond with its own brief, and this back-and-forth process will continue over the coming months.
Alderoty has suggested that the case could drag on until mid-2025. Despite this lengthy legal process, the price of $XRP has remained fairly steady. The token is currently trading at $0.5498, down by just 0.8% in the past 24 hours.
