Ripple files Form C appeal, disputes institutional XRP sales ruling

Ripple Labs has filed an appeal challenging a US District Court decision that labelled its institutional XRP sales as securities transactions.

Ripple’s appeal, detailed in its Form C, calls for a “de novo” review, enabling the appellate court to independently evaluate the district court’s legal interpretations without deferring to prior judgments.

This appeal, confirmed by lawyer James K in an October 25 X post, follows a previous decision by the Southern District of New York over the institutional sale of XRP.

Ripple’s legal team contends that the ruling misinterprets essential aspects of securities law, particularly regarding the classification of XRP sales as investment contracts under the Securities Act of 1933.

Ripple’s legal arguments focus on four central questions, starting with the interpretation of an “investment contract” under the 1933 Securities Act. 

Ripple argues that a legitimate investment contract should include a formal agreement, along with defined post-sale responsibilities and the right for buyers to receive profits directly from Ripple.

The company contends that its XRP sales do not meet this definition, a point Ripple believes is critical for establishing a more precise legal framework for digital assets.

Next, Ripple’s appeal challenges the lower court’s application of the “Howey Test,” a standard for identifying securities derived from the 1946 SEC vs. W.J. Howey Co. case. 

Ripple argues that its XRP sales do not meet Howey’s conditions, as they do not involve investments in a “common enterprise” with profits solely expected from Ripple’s efforts. 

According to the filing, this aspect of the ruling misinterprets the nature of its transactions and could impact how digital assets are classified in future cases.

Ripple also raises the issue of “fair notice,” arguing that it provided ample disclosures about regulatory uncertainties surrounding XRP and asserts that the SEC has not provided clear guidance on crypto regulations.

This, Ripple claims, indicates a failure by the SEC to clarify legal requirements for digital asset transactions, a critical component of Ripple’s defence.

Lastly, Ripple contends the specificity of the injunction imposed by Judge Analisa Torres, which broadly requires Ripple to “obey the law.” Ripple argues that this lacks clarity, falling short of the necessary legal specificity under the Federal Rules of Civil Procedure.

In a separate post, Ripple’s legal chief, Stuart Alderoty, reminded the community that the SEC “can’t submit new evidence or ask [Ripple] to produce more” during the appeal. Alderoty expressed optimism, saying that the SEC’s attempts to “distract” Ripple and the industry had become “background noise,” adding: 

“The hard part of the fight is behind us. Ripple’s business is growing and getting stronger every day even as this appeal process plays out.”

The story so far

Ripple’s legal battles began in December 2020 when the SEC filed a lawsuit alleging that Ripple’s XRP sales represented an unregistered securities offering, raising $1.3 billion. Ripple has consistently argued that XRP should not be classified as a security, citing differences between XRP and other assets like Bitcoin and Ethereum, which are not classified as securities.

In March 2021, a ruling by Judge Sarah Netburn recognized XRP’s utility and currency-like value, distinguishing it from other crypto assets. 

On July 13, 2023, Judge Analisa Torres ruled that XRP was not a security in public exchange sales. However, the court found that Ripple’s institutional XRP sales did violate securities law, leading to the $125 million fine. 

The SEC’s appeal of this partial ruling was denied in October 2023, but the agency still requested a review of the legal interpretation surrounding institutional sales. 

Ripple’s latest filing now brings these issues before the Second Circuit Court as it continues to challenge the regulatory framework surrounding digital assets in the United States.

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