SEC retargets Ripple’s XRP sales on exchanges, distributions of XRP to employees in Form C filing

The Commission does not dispute the $125 million fine imposed on Ripple Labs.

Key Takeaways

• The SEC's appeal does not contest XRP's classification as a non-security but 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.

The SEC is appealing the July 2023 ruling that determined Ripple’s XRP sales on digital asset platforms, executives’ sales, and other distributions of XRP did not constitute investment contracts, according to a Civil Appeal Pre-argument statement (Form C) shared by attorney James Filan.

“Whether the district court erroneously granted partial summary judgment in favor of defendants with respect to Ripple’s offers and sales of XRP on digital asset trading platforms (and Garlinghouse’s and Larsen’s aiding and abetting of those offers and sales), Garlinghouse’s and Larsen’s personal offers and sales of XRP, and Ripple’s distributions of XRP in exchange for consideration other than cash. These issues are to be reviewed de novo,” the filing wrote.

In July 2023, Judge Analisa Torres of the US District Court for the Southern District of New York ruled that Ripple’s institutional sales of XRP were unregistered securities offerings.

However, the judge also determined that Ripple’s sales of XRP on digital asset trading platforms and the sales of XRP by Ripple executives Brad Garlinghouse and Chris Larsen did not constitute securities transactions.

The court also ruled that Ripple’s distributions of XRP for employee compensation and its Xpring initiative were exempt from securities classification.

Following the ruling, Ripple was ordered to pay a $125 million penalty for unregistered securities offerings through institutional XRP sales. This was lower than the SEC’s initial request for nearly $2 billion and was expected to bring the long-running legal dispute to a close.

Now the SEC has decided to appeal part of the ruling that favored Ripple, which potentially extends the case until early 2026. If the SEC prevails, Ripple may face additional penalties or operational restrictions.

Commenting on the SEC’s latest filing, law expert Jeremy Hogan called the SEC’s decision to appeal was a “chicken move.”

“The SEC completely folded when it had the opportunity to actually try the case against Garlinghouse and Larsen in front of a jury. And now it’s trying to bring those claims back to life. Chicken move IMO,” Hogan stated.

“What I like? This appeal is about money. The injunction could change if Ripple were to lose, but only indirectly (as to order compliance),” he added.

James Murphy, a renowned crypto lawyer, said he was “mildly” surprised that the SEC “did not appeal the $0 ruling on disgorgement.” The court previously denied the SEC’s request to disgorge $876 million in profits from Ripple, limiting the SEC’s ability to seek large disgorgement penalties.

Following the SEC’s Form C submission, Ripple is expected to file its own Form C for a cross-appeal next week. The company might contest either the $125 million fine or the decision that institutional sales of XRP were securities.