Key Takeaways
- The SEC filed a filing appealing a court ruling that found XRP was not a security when it was sold to retail investors.
- The SEC seeks to overturn the district court's ruling and classify all XRP sales as unregistered securities offerings.
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The SEC on Wednesday filed an opening brief in its efforts to get the US Court of Appeals for the 2nd Circuit to block a previous court ruling that found XRP was not classified as a security when it was to sell to retail investors.
In July 2023 managementJudge Analisa Torres of the US District Court distinguished between the sale of XRP, confirming that those on exchanges were not securities, but sales to institutional investors were. After this decision, a final judgment last August ordered Ripple pay a $125 million civil penalty for institutional sales of XRP.
The SEC later decided proceed with applicationaimed to challenge the court's ruling that secondary market sales of XRP tokens were unsecured.
In the short shared by defense attorney James Filan, the SEC contends that both institutional and retail XRP sales meet the criteria for investment contracts under the Howey test. The regulator reiterated that Ripple's sales of XRP, worth more than $2 billion, were unregistered investment deals and violated federal securities laws.
The appeal challenges the district court's distinction between institutional and retail investors. The SEC argues that this distinction defeats the purpose of the Howey test normal, that is focuses on the economic facts of the transaction and what a reasonable investor would understand about the investment opportunity, not the specific identity of the seller.
The SEC says that Ripple's public marketing campaign fueled its efforts to increase the price of XRP. The regulator claims that the campaign reached all investors, both institutional and retail, making all buyers reasonably expect profits based on Ripple's activities.
Because of this, the SEC contends that the lower court's distinction between “sophisticated” institutional investors and “less sophisticated” retail investors was invalid and violated e Howey standard.
“All XRP investors – not just institutional investors who knowingly bought XRP from Ripple – reasonably expected to profit from Ripple's efforts to increase the price of XRP,” the release says. that difference against Howey's goal standard,”
The SEC also disputes the district court's ruling that Ripple's transactions involving non-monetary consideration, including XRP paid to employees and business partners, do not qualify as contracts investment. The appeal argues that these transactions satisfy the “investment of money” requirement.
The regulator seeks to overturn the district court's final judgment that favored Ripple and confirm that all XRP sales qualify as unregistered securities offerings.
If successful, the case will return to the district court. There, a judge would decide what further actions should be taken against Ripple and whether its top executives helped break securities laws when XRP was sold to investors. The SEC is also targeting “additional remedies,” which could include more penalties.
SEC is preparing to review crypto policies under Trump
The summary comes amid growing optimism about Trump's return to the White House next Monday, which also happens to be the day SEC Chairman Gary Gensler steps down. officially retired.
Industry leaders and experts see a strong possibility that legal enforcement actions could begin under Gensler's leadership reach a compromise or settlement.
SEC commissioners Hester Peirce and Mark Uyeda, under the incoming Trump administration, are expected to organization reform regulations, focus on the classification of crypto-assets and which could prevent a non-fraud lawsuit.
The initiative, led by future SEC Chairman Paul Atkins, aims to introduce more crypto-friendly policies. As part of this policy change, the SEC may suspend some of its existing guidance and review the enforcement approach it has taken over the past few years.
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