Ripple Labs has taken up the challenge the SEC to the United States Court of Appeals for the Second Circuit, and has filed a cross-appeal on Form C challenging key aspects of the SEC lawsuit. This filing not only challenges a previous ruling that classified certain XRP transactions to institutional investors as securities, but also responds directly to the SEC’s Oct. 16 appeal questioning a favorable district court ruling for Ripple earlier this year.
Ripple’s legal rebuttal via Form C filing
Ripple’s filing of a Form C The cross-appeal has sparked interest within both the legal and cryptocurrency communities, with Ripple Chief Legal Officer Stuart Alderoty confirming the move in a post on . The Court of Appeals will only review the record that has already been established, and the SEC cannot submit new evidence or ask Ripple to produce more.
Today, Ripple filed a Form C, listing the issues we plan to address in our cross-appeal. A few things to keep in mind as we move forward:
The case is not about whether XRP is a security in itself. XRP has a unique position because (alongside BTC) it has clarity about the fact that it is not… https://t.co/AmFocAnbPx
— Stuart Alderoty (@s_alderoty) October 25, 2024
The appeal calls for a de novo review of all issues involved in the case, including whether Ripple’s transfers of XRP qualify as securities under the Howey test. Established in a 1946 Supreme Court case, the Howey test determines whether a transaction constitutes an investment contract by assessing factors such as the investment of money and the expectations of profits from the seller’s activities.
The request for a de novo review could have significant implications as it essentially seeks a fresh look at these complex issues and how they can be applied to the cryptocurrencies and other aspects of the industry.
Challenging the SEC’s position on cryptocurrency regulation
Ripple’s Form C filing also aims to address what it describes as vague and inconsistent statements from the SEC on the application of securities laws to digital assets. The SEC has long argued that the selling XRP is a certaintyrequiring Ripple to follow federal securities regulations. However, Ripple’s latest Form C filing highlights the lack of regulatory clarity, leaving the crypto industry uncertain about its compliance with SEC standards.
Based on applications of the Howey test, the court determined that sales of XRP to the general public were not securities. However, it also found that early-stage sales of XRP to institutional investors were classified as unregistered securities offerings, prompting an order for Ripple to pay a $125 million civil penalty.
By asking for a de novo review and applying the Howey’s test, Ripple aims to overthrow $125 million was asked to pay.
The outcome of this cross-appeal could have far-reaching consequences for the broader cryptocurrency industry. If the court sides with Ripple, the ruling could serve as a precedent for future cases, potentially setting new limits on the SEC’s crackdown on the crypto industry. A ruling in favor of the SEC could further strengthen the regulator’s ability to apply securities laws to the industry.
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