SEC’s Focus on Ripple’s XRP Sales and Distributions in New Filing
In a recent filing, the SEC has appealed the July 2023 ruling that declared Ripple’s XRP sales on digital asset platforms and distributions of XRP to employees as non-securities. While the SEC does not contest XRP’s classification as a non-security, it challenges other aspects of the ruling. The appellate court will conduct a de novo review of the SEC’s claims against Ripple’s XRP transactions.
Judge Analisa Torres determined that Ripple’s institutional sales of XRP were unregistered securities offerings. However, the judge also ruled that Ripple’s sales of XRP on digital asset trading platforms and the sales by Ripple executives Brad Garlinghouse and Chris Larsen did not constitute securities transactions. Additionally, Ripple’s distributions of XRP for employee compensation and its Xpring initiative were deemed exempt from securities classification.
Ripple was ordered to pay a $125 million penalty for unregistered securities offerings, which was significantly lower than the SEC’s initial request for nearly $2 billion. It was expected that this ruling would bring an end to the long-running legal dispute. However, with the SEC deciding to appeal the part of the ruling that favored Ripple, the case may be extended until early 2026. If the SEC succeeds in its appeal, Ripple could face additional penalties or operational restrictions.
The SEC’s decision to appeal has been met with criticism, with some calling it a “chicken move.” Legal expert Jeremy Hogan stated that the SEC had backed down when given the opportunity to try the case against Garlinghouse and Larsen in front of a jury and is now trying to revive those claims. He also noted that while the injunction could change if Ripple loses, it would only have an indirect effect on order compliance.
Interestingly, the SEC did not appeal the court’s ruling of zero disgorgement, which denied the SEC’s request to disgorge $876 million in profits from Ripple. Renowned crypto lawyer James Murphy expressed mild surprise at this and anticipated that Ripple would file its own Form C for a cross-appeal to contest either the $125 million fine or the decision that institutional sales of XRP were securities.
Overall, the SEC’s appeal brings further uncertainty to the legal proceedings between Ripple and the SEC, prolonging the resolution of the case and potentially impacting Ripple’s future operations.