Ripple’s legal journey continues as the company moves forward with its cross-appeal in the ongoing lawsuit with the U.S. Securities and Exchange Commission (SEC). On October 24, 2024, Ripple filed a Form C, listing the key issues to be addressed during the appeal process.
Stuart Alderoty, Ripple’s Chief Legal Officer, shared details about the filing on social media, emphasizing critical points about the nature of the appeal and its significance for both Ripple and the broader crypto industry.
The appeal is not centered around whether XRP, the digital asset created by Ripple, is inherently a security. It was previously determined that XRP itself does not qualify as a security, and Alderoty reiterated that this classification is not under dispute in the current appeal.
“XRP is uniquely situated as having clarity (alongside BTC) in not being classified as a security,” he stated, pointing out that the SEC is not contesting this ruling, which now stands as established law. This is a crucial distinction, as the broader legal battle focuses on Ripple’s past sales and the way the company conducted certain transactions, rather than on XRP as an asset.
Key Issues Raised in Ripple’s Appeal
Ripple’s Form C outlines four main issues that the company seeks to address on appeal, all of which are subject to a de novo standard of review—meaning the appellate court will examine the case from scratch, without being bound by the lower court’s conclusions.
The first key issue is whether certain XRP transactions, specifically those identified by the SEC, meet the legal definition of an “investment contract” under the Securities Act of 1933.
For a transaction to be considered an investment contract, it must involve an agreement that grants buyers the right to expect profits derived from the efforts of the seller. Ripple argues that not all of its XRP transfers meet this criterion.
Secondly, Ripple questions whether the district court made a legal error in applying the Howey test, the standard used to determine whether a financial arrangement qualifies as an investment contract.
Ripple claims that the district court’s conclusions about certain XRP sales misapplied the Howey test. This test requires (1) an investment of money, (2) in a common enterprise, and (3) an expectation of profits predominantly from the efforts of others. Ripple contends that some of its XRP sales should not be viewed through this lens.
The third issue revolves around the SEC’s approach to digital assets and virtual currencies. Ripple argues that there has been widespread uncertainty in how federal securities laws should be applied to this emerging sector, due in part to the SEC’s inconsistent and vague guidance.
Ripple believes that this ambiguity caused a legitimate dispute over whether the company had “fair notice” that its actions could be seen as violating securities laws. Ripple maintains that it was not adequately informed about the regulatory framework it was operating within, raising concerns about the application of the law.
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Appellate Process and Lack of New Evidence
In his tweet, Alderoty reassured the crypto community that the hardest part of the legal fight is now behind Ripple, with the focus shifting toward the appellate process. He noted that the appeals court will base its decision on the record already established in the trial court, meaning no new evidence will be introduced.
This is a significant development, as it eliminates much of the procedural drama that characterized the earlier stages of the case, such as the disputes over the release of internal SEC documents.
The timing of this appeal comes at a critical juncture for Ripple, which has seen its business grow and strengthen despite the ongoing legal proceedings. Alderoty downplayed the SEC’s broader strategy of creating confusion and distraction for Ripple and the industry, calling it “background noise” at this stage.
The company’s leadership appears confident that Ripple’s solid legal record will prevail on appeal, providing clarity for Ripple and the broader cryptocurrency market.
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