The SEC has filed an appeal against the 2023 ruling in favor of Ripple by Judge Analisa Torres.
This will have severe consequences for the crypto industry with experts predicting a run until 2026.
If the SEC wins, we will likely see stricter regulations for crypto.
The uncertainty surrounding the legal battle could affect XRP's price.
Gubir Grewal, the SEC's enforcement chief recently stepped down in what might be a positive development for crypto.
It turns out that the SEC versus Ripple Saga is far from over.
This week, the US Securities and Exchange Commission officially filed an appeal against Ripple Labs.
Within the new suit, the agency is seeking to overturn parts of the recent court ruling in favor of the defendants.
The new development comes amid fears of renewed scrutiny against Ripple and XRP.
Here are all the details of this new development and the broader implications for the market in the U.S. legal system.
The SEC initially filed the first lawsuit against Ripple Labs and its executives in December 2020.
In this suit, it accused the company of conducting an unregistered securities offering by selling XRP tokens back in 2017.
The lawsuit eventually sparked a widespread debate about the “security versus commodity” classifications. It also raised questions about how much regulatory authority the SEC should hold.
Last year in July 2023, U.S. District Judge Analisa Torres ruled in favor of Ripple.
Torres determined that the secondary market sales of XRP (those conducted on public exchanges) did not constitute sales of securities.
However, the institutional sales of the cryptocurrency to accredited investors did violate securities laws.
The SEC returned this week on 2 October with an appeal of its own.
Within the filing, the agency seeks to target Judge Torres' “non-security” ruling from last year.
The appeal filing
The agency also argues that Torres’ ruling undermines the Howey Test.
For context, the Howey test is a legal framework that is used to determine what is (or isn’t) a security.
The way it works is simple: If something is sold to investors with promises of profit from the efforts of others, said asset is called a security.
The SEC argues that XRP (and most other cryptos) fall under this definition. In essence, Torres' ruling directly challenges the Howey test.
Ripple’s CEO Brad Garlinghouse wasted no time in responding to the SEC’s move.
"Somehow, they still haven’t gotten the message,” he said in a recent tweet “They lost on everything that matters.”
He argued that XRP's current status as a non-security in secondary market sales is “the law of the land”.
He also said, "If Gensler and the SEC were rational, they would have moved on from this case long ago”.
SEC should have moved on
Ripple’s Chief Legal Officer Stuart Alderoty also expressed disappointment but not surprise at the SEC’s decision in a separate tweet.
“The SEC's decision to appeal is disappointing but not surprising” Alderoty began “This just prolongs what's already a complete embarrassment for the agency.”
“the SEC's lawsuit has been irrational and misguided from the start and we're ready to prove that yet again in the appellate court” he finished.
Ripple is reportedly considering whether to file a cross-appeal on the parts of the ruling that did not go in its favor.
Some of these factors (unfortunately) will further complicate and prolong the legal battle.
Fred Rispoli, lawyer and the founder of HODL Law speculates that Ripple “will” cross-appeal.
The case will likely end between January and April 2026, he said.
The SEC’s appeal will affect Ripple and XRP. However, it is likely to affect the rest of the market as well by setting a precedent.
The crypto industry has been at war with regulatory agencies for years over crypto classification.
Many projects and companies have asked repeatedly for clear guidelines on what constitutes a security to no avail.
This said a ruling in favor of the SEC this time around might give the agency an even bigger iron hand to classify more assets as securities.
More securities equal more litigation and no sector would be safe.
Ethereum co-founder Joseph Lubin along with other executives have criticized the SEC ceaselessly.
They accuse the agency of stifling innovation in the U.S. blockchain space.
Some even argue that the lack of clear regulations is pushing innovation offshore.
In what many have called a coincidence, the SEC also announced the resignation of Gubir Grewal its enforcement chief—on the same day as its appeal against Ripple.
This step-down will become effective starting on 11 October 2024.
Interestingly, Grewal’s tenure has been marked by an incredibly aggressive approach to regulation.
Within the span of his service within the SEC, the agency has served over 100 enforcement actions.
Speculation is now starting to swirl that with Grewal gone, the SEC may start to take a softer approach to crypto regulation.
The agency’s deputy enforcement chief, Sanjay Wadhwa has now been appointed to Grewal’s position for the time being.
Overall, XRP holders and the rest of the market will have to wait and see what comes next.
The incoming battle will likely be long and drawn out with consequences for Ripple, XRP, investors and even the SEC itself.
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