The U.S. Securities and Exchange Commission (SEC) has officially filed an appeal in its ongoing lawsuit against Ripple, seeking to classify the cryptocurrency XRP as a security. In a brief submitted on Wednesday, the SEC disagreed with the earlier ruling by the U.S. District Court for the Southern District, which stated that certain XRP sales to retail investors did not violate securities laws. The appeal basically challenges the district court’s distinction between institutional and retail investors.
The SEC said, “The district court reasoned that institutional investors reasonably expected profits from the efforts of others because Ripple represented that its efforts would increase the price of XRP.”
Disagreement with Court’s Ruling
The SEC argued that the district court’s distinction between the expectations of institutional and retail investors is inconsistent with the objective investor standard outlined in the Howey test. They also claimed it goes against a fundamental principle of federal securities laws, which asserts that less sophisticated investors are just as deserving of protection as more sophisticated investors.
“But the district court erroneously found that retail investors did not have that same expectation because they purchased XRP through crypto asset trading platforms and thus did not know if the seller was Ripple, a Ripple affiliate, or someone else,” the agency added. The SEC wants to reverse the court’s ruling in favor of Ripple and argue that all XRP sales are unregistered securities. If they win, the case will go back to the district court.
Possible Shift in Crypto Regulation
Amid this legal chaos, rumors are circulating that the Trump administration’s SEC could revamp its stance on crypto regulation. Reports suggest a potential pause on enforcement actions, which could lead to quicker settlements and a shift away from “regulation by enforcement.” With the current sec chair Gary Gensler set to step down next week, the new administration is expected to bring more clarity and support for the crypto industry.
