Ripple Labs is set to intensify its ongoing legal contention with the United States Securities and Exchange Commission (SEC) by taking the case to an elevated jurisdiction. The legal proceedings have been underway since 2020 when the SEC alleged that Ripple’s cryptocurrency token sale, XRP, was an unregistered securities offering.
The company took a formal step towards the escalation on October 10, filing a notice of cross-appeal in the US District Court for the Southern District of New York. The aim is to move the case to the Court of Appeals for the Second Circuit, where the original appeal by the SEC, as well as Ripple’s cross-appeal, will be evaluated for possible legal or procedural inaccuracies.
The core of the argument to be evaluated revolves around an August 7th decision that ordered Ripple Labs to pay a $125 million civil penalty for securities law transgression. Notably, the regulator initially intended for a much larger, $2 billion fine, whereas Ripple countered with a suggestion of a maximum fine of $10 million.
Distinguishing this case is a pivotal ruling by Judge Analisa Torres in July 2023. The judge ruled that while Ripple’s XRP sales to institutional investors infringed securities laws, its programmatic sales, which were made to the general public and to developers and employees, didn’t qualify as securities sales.
Ripple’s chief legal officer Stuart Alderoty commented on the company’s decision to cross-appeal, hinting at the complexity of defining an “investment contract” and suggesting that the SEC had failed with its appeal. The Howey test, a determinant for identifying an investment contract, suggests a transaction is considered an investment contract, thus falling under the US securities law, if it involves an investment of money in a common enterprise with an expectation of profits derived primarily from the efforts of others.
Alderoty further stated that the SEC will likely not appeal Judge Torres’s ruling stating XRP is not a security. The focus of both the SEC and Ripple in the upcoming weeks will be presenting further arguments following the recent cross-appeal and appeal filings. However, the timeline remains vague, with unclear intentions from the SEC as to whether it will dispute the fines or continue to challenge XRP’s status.