The U.S. Securities and Exchange Commission (SEC) has filed an appeal against the federal court ruling that declared XRP, the native token of Ripple, as not a security for retail investors. The appeal, which was filed on August 10, 2023, seeks to overturn the decision by U.S. District Judge Analisa Torres, who ruled in favor of Ripple in July.
The SEC had sued Ripple in December 2021, alleging that the company and its executives had raised over $1.3 billion through an unregistered and ongoing securities offering of XRP. The SEC claimed that XRP was a security under the Howey test, which determines whether an asset is an investment contract based on four criteria: an investment of money, in a common enterprise, with an expectation of profits, derived from the efforts of others.
However, Judge Torres disagreed with the SEC’s argument, and ruled that XRP was not a security for retail investors who bought it on crypto exchanges. She said that these investors did not have any contractual relationship with Ripple, and did not expect any profits from Ripple’s efforts. She also said that these investors were not aware of XRP’s securities-like features when they bought it, unlike institutional investors who were directly sold XRP by Ripple.
Ripple and XRP community celebrate partial victory
The court ruling was hailed as a partial victory by Ripple and the XRP community, who have been fighting against the SEC’s lawsuit for over a year. The ruling meant that Ripple could continue to operate its business and sell XRP to retail investors without registering it as a security. It also meant that XRP could be relisted on crypto exchanges that had delisted it due to the SEC’s lawsuit.
Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen expressed their gratitude to Judge Torres and their legal team for the favorable outcome. They also thanked the XRP community for their support and solidarity throughout the legal battle. They said that they were confident that they would prevail in the case and prove that XRP was not a security.
XRP’s price also reacted positively to the court ruling, surging over 50% in July to reach $0.75 per token. It also regained its spot as the fourth-largest cryptocurrency by market capitalization, after being overtaken by several other coins during the lawsuit. Some crypto exchanges, such as Gemini, also announced that they would relist XRP on their platforms, following Ripple’s partial victory.
SEC continues to pursue case against Ripple and XRP
However, the SEC’s appeal shows that the regulator is not giving up on its case against Ripple and XRP. The appeal indicates that the SEC is not satisfied with Judge Torres’ decision, and believes that it has strong grounds to challenge it. The appeal also suggests that the SEC is determined to assert its authority over the crypto industry, and to enforce its securities laws on crypto assets.
The SEC’s appeal could have significant implications for Ripple and XRP, as well as for the broader crypto market. If the appeal is successful, it could reverse Judge Torres’ ruling, and declare XRP as a security for all investors. This could mean that Ripple would have to register XRP as a security with the SEC, and comply with its regulations and reporting requirements. It could also mean that XRP would be delisted from crypto exchanges again, and face legal actions from investors who bought it.
The appeal could also affect other crypto projects that may have similar characteristics to XRP, such as issuing tokens through initial coin offerings (ICOs), or having centralized entities behind them. The appeal could set a precedent for how the SEC treats these projects, and whether they are subject to securities laws or not.
