Ripple Challenges SEC in Major Appeal

Ripple Labs has submitted a Civil Appeal Pre-Argument Statement—Form C—against the SEC's recent ruling in their ongoing case. Filed on October 24, the document outlines key issues Ripple will raise in the appeal. It’s a de novo appeal, meaning the court will review each issue afresh, without relying on previous court conclusions.

Ripple’s appeal centers on four main arguments. First, Ripple questions the definition of an “investment contract” under Section 5 of the Securities Act of 1933. The company argues that an investment contract must include specific elements: (a) a contract, (b) post-sale obligations for the seller, and (c) the buyer’s right to claim profits from the seller’s efforts. Second, Ripple contests the lower court’s interpretation of the Howey Test, a key legal standard from a 1946 Supreme Court decision. The company argues that the court wrongly classified some XRP transfers as investment contracts, specifically challenging the criteria of an investment of money, a common enterprise, and profit expectation from Ripple’s activities.

Third, Ripple revisits its “fair notice” defense, claiming the company was not clearly informed that its actions breached Section 5 of the Securities Act. Ripple highlights the lack of clarity surrounding federal securities laws applied to digital assets, stressing that inconsistent SEC statements compounded this confusion. Lastly, Ripple takes issue with the injunction’s wording issued against it, asserting it lacks clarity and specifics. Ripple contends that the injunction’s broad directive to “obey the law” could harm the company’s business operations by leaving too much open to interpretation.

Pro-XRP attorney Jeremy Hogan commented on the appeal, noting that Ripple’s challenge to the investment contract definition could significantly impact the crypto sector. He highlighted that while winning this issue might not free Ripple from its $105 million judgment, it could weaken the SEC’s enforcement approach by emphasizing that an investment contract should include specific contractual terms.

Hogan also emphasized Ripple’s fair notice argument and questioned the practicality of the injunction’s general language. He noted that Ripple is likely aiming to avoid having a broadly defined injunction affecting its operations long-term. Ripple’s Chief Legal Officer, Stuart Alderoty, shared additional insights, clarifying that the appeal is not about XRP’s classification as a security. “XRP and BTC are not classified as securities,” he stated, noting that the SEC is not disputing this decision.

Alderoty reassured investors that the appellate court will review the current record without the SEC introducing new evidence. He urged stakeholders to view the SEC’s broader strategy as an attempt to “create distraction and confusion” for Ripple and the crypto industry. However, Alderoty emphasized that Ripple is now on solid footing and continues to expand its business despite the ongoing legal process.

In a related update, the SEC has asked to extend its filing deadline for the principal brief to January 15, 2025. Additionally, pro-XRP lawyer John E. Deaton has filed to appear as amicus counsel in the Second Circuit, emphasizing his ongoing commitment to supporting Ripple’s position.