Emily Walker
A noteworthy turn has occurred in the ongoing legal battle between Ripple Labs, Inc. and the US Securities and Exchange Commission (SEC), as the nonprofit Better Markets, Inc. submitted an amicus curiae brief on January 22. This brief, presented to the United States Court of Appeals for the Second Circuit, strongly backs the SEC’s appeal concerning a recent district court ruling that narrowly interpreted the term “investment contract” and its relation to XRP.
In the submitted brief, Better Markets criticizes the lower court’s reading of the Howey test, which helps determine if a transaction counts as an investment contract and thus a security. They argue that the previous ruling wrongly excluded XRP tokens traded on secondary markets from securities regulation, limiting the classification to direct purchases from the issuer.
#XRPCommunity #SECGov v. #Ripple #XRP @Ripple Better Markets Inc. has filed an Amicus Brief in Support of the @SECGov.
— James K. Filan
(@FilanLaw) January 22, 2025
Ripple And XRP Under Scrutiny
According to Better Markets, the district court has significantly restricted the definition of an “investment contract,” excluding many cryptocurrency offerings and possibly other investment types from securities regulation. They argue that this interpretation goes against established legal standards designed to evolve with financial developments and safeguard investors from new risks.
The brief highlights a crucial mistake by stating, “The court’s ruling about secondary sales or ‘Programmatic’ transactions under Howey was incorrect.” Better Markets insists that how an investor acquires a token does not alter the basic expectation of profits from others’ efforts, a key element of the Howey test.
Moreover, Better Markets questions the district court’s perspective on the economic realities surrounding Ripple’s token sales, particularly how Ripple’s promotion efforts shaped investor expectations. The brief details Ripple’s extensive marketing initiatives through numerous channels, including brochures, market reports, interviews, and social media.
The organization also challenges the district court’s view on the sophistication levels of retail investors, noting that the court’s underestimate ignores contemporary economic conditions. It emphasizes that many retail investors learn about new investment opportunities through social media, which marketers increasingly use to draw in funds.
The brief warns of severe ramifications for investor protection if the district court’s decision prevails, pointing to the heightened risk of exploitation in the cryptocurrency market, especially for less knowledgeable retail investors. They assert, “Without regulation of these securities, the SEC’s capacity to safeguard these investor groups—exchange traders and less sophisticated individuals—will be compromised, exposing them to significant risks in the crypto market.”
However, the impact of this submission remains uncertain. Speculation surrounds Mark Uyeda’s recent appointment as the acting Chair of the SEC, with discussions regarding a possible resolution to the SEC’s case against Ripple during his interim leadership.
It’s noteworthy that a closed meeting is set to occur under Uyeda’s guidance on January 23, which has stirred rumors about potential settlement discussions that could influence Ripple’s ongoing legal status.
As of the latest update, XRP is valued at $3.14.
