On October 28, 2024, Ripple Labs initiated a challenge against the SEC in the US Court of Appeals for the Second Circuit, filing a Form C cross-appeal to contest key aspects of the SEC lawsuit. This move addresses a previous ruling that classified certain XRP transactions to institutional investors as securities and responds to the SEC's October 16 appeal questioning a favorable district court ruling for Ripple earlier this year.
Ripple's Chief Legal Officer, Stuart Alderoty, confirmed the filing, stating that the lawsuit will proceed with less drama than earlier stages, as the Appeals Court will review only the existing record without new evidence from the SEC. The appeal seeks a de novo review of whether Ripple's XRP transfers qualify as securities under the Howey test, which assesses investment contracts based on factors like the investment of money and profit expectations.
The implications of this review could be significant, potentially reshaping how cryptocurrencies are classified under securities laws. Ripple's filing also addresses what it calls vague statements from the SEC regarding digital asset regulations. The SEC has maintained that XRP sales are securities, necessitating compliance with federal regulations, yet Ripple highlights the lack of regulatory clarity affecting the crypto industry.
Previously, the court ruled that XRP sales to the general public were not securities, while those to institutional investors were classified as unregistered securities offerings, resulting in a $125 million civil penalty for Ripple. By requesting a de novo review, Ripple aims to overturn this penalty.
The outcome of this cross-appeal could set a precedent for the cryptocurrency industry. A ruling in favor of Ripple may limit the SEC's regulatory reach, while a decision favoring the SEC could reinforce its authority over digital assets.