The SEC has filed an opening brief to the US Court of Appeals for the 2nd Circuit, seeking to reverse a prior ruling that determined XRP is not a security when sold to retail investors.
In a brief, defence attorney James Filan claims that both institutional and retail sales of XRP qualify as investment contracts under the Howey test. The regulator highlights that Ripple’s $2 billion XRP sales were unregistered investment contracts, violating federal securities laws.
The SEC’s appeal challenges the district court’s distinction between institutional and retail investors, arguing it undermines the Howey test’s focus on economic realities instead of the seller’s identity. They assert that Ripple’s marketing targeted all investors, leading them to expect profits from Ripple’s efforts, claiming the lower court’s differentiation between “sophisticated” and “less sophisticated” investors is flawed and violates the Howey standard.
“All XRP investors — not just institutional investors who purchased XRP knowingly from Ripple — reasonably expected profits from Ripple’s efforts to increase the price of XRP. That distinction is contrary to Howey’s objective standard,”
the filing reads.
The SEC is appealing a ruling that XRP given to employees and partners isn’t considered an investment under the Howey test, equating service receipt to monetary payment. If the appeal is successful, the case may lead to further actions against Ripple for potential securities violations. With the incoming Trump administration, SEC commissioners Hester Peirce and Mark Uyeda plan to reform crypto asset regulations, potentially leading to more crypto-friendly policies and revised enforcement approaches.
The brief comes at a time of growing optimism surrounding Trump’s expected return to the White House, coinciding with SEC Chair Gary Gensler’s official departure. Industry leaders and experts believe there is a strong possibility that legal actions initiated under Gensler’s leadership could end in dismissal or settlement.
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