Ripple Labs Files Form C Cross-Appeal in Ongoing Legal Battle With the U.S. Securities and Exchange Commission (SEC)

The company seeks to reverse certain parts of a prior ruling concerning specific XRP token institutional sales, which were considered securities

Ripple Labs filed a Form C cross-appeal in the U.S. Court of Appeals for the Second Circuit on Monday as part of its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC).

The cross-appeal pertains to specific XRP token institutional sales, which were earlier deemed securities by the court, subjecting Ripple to a fine of $125 million. However, Ripple’s cross-appeal does not challenge XRP’s status as a non-security, as declared in the pivotal court ruling in July.

Instead, the cross-appeal challenges the district court’s interpretation of the 1933 Securities Act as it applies to XRP sales. The argument centers on the definition of an “investment contract,” which typically involves the absence of post-contractual obligations on the part of the seller or the buyer’s entitlement to profits generated by the seller’s efforts.

According to Ripple, it sells XRP neither at the request nor for the account of any buyers. It argues that neither of these conditions applied to its XRP sales and that the court’s decision was overly broad in interpreting securities law.

Ripple also counters the court’s application of the Howey Test, the 1946 Courts standard for classifying a transaction as a security. The company claims that the court erred in its understanding of the “investment of money” and “common enterprise” elements of the Howey framework.

Moreover, XRP operates in a decentralized environment where investor returns are not solely determined by the activities of Ripple itself, rendering XRP ineligible for the securities classification used by the court.

In addition to its cross-appeal, Ripple has also criticized the SEC’s approach, highlighting the need for clear regulatory guidance for companies. The firm argues that it could only have deliberately flouted the rules if it were adequately instructed on what those rules entailed.

If Ripple’s fair notice defense is successful, it could limit the SEC’s enforcement powers in this case. However, a favorable outcome for Ripple may also set a precedent for the SEC to provide clearer guidance for cryptocurrency firms moving forward.

This position aligns with Ripple’s opposition to the court’s injunction, which instructed the firm to act in accordance with the law in a manner that Ripple characterizes as vague.

According to Ripple, the absence of specific guidelines makes compliance difficult and leaves the firm vulnerable to legal risks and operational opacity. The firm’s legal team believes that a more refined injunction would provide the firm and the industry with clearer standards.

Meanwhile, Ripple is also facing an appeal from the SEC at the Second Circuit Court, which pertains to programmatic XRP sales and employee distributions made by Ripple itself.

Judge Analisa Torres’ ruling that those sales did not constitute securities violations is being contested by the SEC, which alleges that Ripple executives Brad Garlinghouse and Chris Larsen facilitated the sales of XRP without registering them.

This aspect of the SEC’s appeal is crucial as it seeks to expand the regulatory oversight of the SEC over cryptocurrency transactions.

If the SEC’s lawsuit succeeds in this regard, it could pave the way for other digital assets to be treated as securities, potentially impacting token sales across the industry.

Furthermore, the case also raises questions about the limits of the SEC’s regulatory reach and whether it will extend to all digital assets, an idea that has attracted significant attention.

As XRP continues to expand into new markets, with recent discussions involving XRP-backed ETFs and interest from asset managers such as Bitwise and Canary Capital,

the ongoing legal battle between Ripple and the SEC remains a point of focus for XRP and the broader cryptocurrency community.

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