The legal battle between Ripple Labs and the US Securities and Exchange Commission (SEC) has taken a new turn with the SEC filing an appeal.
On January 15, the SEC filed an appeal against the court’s decision to sell XRP to individual investors.
SEC Argues Personal XRP Transactions Are Investment Contracts
The SEC is appealing the trial court’s decision that XRP transactions with individual investors were not investment contracts.
Courts have distinguished between individual purchasers and institutional investors, reasoning that individual purchasers do not have the same profit expectations as institutions.
However, SEC for that This reason is not reasonable.
“The Court of First Instance erred in holding that the individual investors had no expectation of profit because they purchased XRP through cryptocurrency exchanges and therefore did not know the seller was Ripple, an affiliate of Ripple, or otherwise,” the SEC said.
The SEC’s legal argument is based on the Howey Test. This is an important decision of the Supreme Court in 1946, defining the definition of investment contracts. According to the Howey Test, an investment contract exists when an investor puts money into a business with the expectation of profits primarily from the efforts of others.
The SEC believes that Ripple’s consistent messaging across multiple platforms, including its website, YouTube, Reddit and media interviews, has shown that all investors, whether individuals or institutions, expect profits from Ripple’s operations.
The SEC also challenged the court’s decision on Ripple exchanging XRP for services and labor. The SEC says that non-cash payments should be treated the same as cash investments under the Howey Test. Some courts have ruled that such transactions satisfy the “investment of money” condition for an investment contract.
The SEC argued that Ripple should register its investment contract with the agency. The SEC also urged the court to reverse the trial court’s decision and uphold the ruling in favor of the Commission. The agency asserted that Ripple’s activities violated securities laws and harmed investors.
Stuart Alderoty, Ripple’s general counsel, responded to the SEC’s appeal on X and called the lawsuit “noise.”
“As expected, the SEC’s appeal is a failed argument – and easily abandoned by the next administration. We will officially respond in the near future. For now, know this: the SEC lawsuit is just noise. A new era of innovation-friendly regulation is coming and Ripple is thriving,” Alderoty said.
The SEC news does not affect the XRP Token. In fact, XRP is up 7.8% over the past 24 hours and is trading at $3.07. It seems like the market is expecting a verdict in favor of Ripple.