Bitrabo Editorial
On Thursday, October 24, Ripple Labs submitted its Civil Appeal Pre-Argument Statement, known as Form C, in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). This document outlines the significant points Ripple plans to argue in its appeal, which will be evaluated afresh by the appellate court without relying on the previous court’s decisions.
Ripple’s Main Arguments in the Appeal
Ripple’s appeal centers on four primary arguments. First, the company questions the interpretation of an “investment contract” as defined in Section 5 of the Securities Act of 1933. Ripple asserts that for something to be considered an investment contract, it must include (a) a contract, (b) entail post-sale obligations for the seller, and (c) ensure that buyers have the right to receive profits from the seller’s activities.
Secondly, Ripple disputes how the district court applied the Howey Test, established by the 1946 Supreme Court case SEC v. W.J. Howey Co. They argue that the court mistakenly found that some XRP transactions constituted investment contracts, particularly questioning whether there was an actual investment of money, a common enterprise, and a reasonable profit expectation driven entirely by Ripple’s actions.
Thirdly, the appeal brings back the “fair notice” defense. Ripple claims it was not adequately informed that its conduct breached Section 5, pointing to general uncertainty around the application of federal securities laws to digital assets and cryptocurrencies. They highlight the SEC’s inconsistent and vague statements as factors that fueled this ambiguity.
Lastly, Ripple contests the clarity of the injunction against it, arguing it does not satisfy the specificity requirements of Rule 65 of the Federal Rules of Civil Procedure. The injunction simply instructs Ripple to “obey the law,” which they believe lacks detail and could restrict their business operations due to its ambiguity.
Pro-XRP attorney Jeremy Hogan commented on the appeal via X, suggesting that Ripple’s challenge to the investment contract definition could significantly impact the crypto sector. He noted, “Ripple is pursuing this matter in the appeals court primarily for the benefit of the entire crypto industry.” While he acknowledged that success on this point might not cancel the $105 million penalty against Ripple, it could significantly undermine the SEC’s enforcement powers by establishing a stricter standard for what constitutes an investment contract.
Hogan also pointed out the return of the fair notice defense and Ripple’s challenge to the specificity of the injunction. He expressed curiosity about why the injunction simply prompts Ripple to “follow the law,” stating it is a common yet nonsensical approach in securities law cases. He added that Ripple appears to prefer not having such an injunction affecting its operations.
Ripple’s Chief Legal Officer, Stuart Alderoty, shared further details about the company’s stance on X. He clarified that the ongoing case is not about whether XRP itself qualifies as a security. “XRP has clear status (alongside BTC) in not being classified as a security,” said Alderoty, emphasizing that the SEC has not challenged this ruling, which is currently accepted as law.
Alderoty assured stakeholders that the appellate court would review the current record without the SEC introducing new evidence or requesting additional documents. He cautioned, “As we navigate this process, bear in mind the SEC’s broader strategy: attempting to create distraction and confusion for Ripple and the entire industry.” He remarked, “However, that’s just background noise now. The challenging part of our fight is over, and Ripple’s business is thriving and becoming stronger each day, even during this appeals process.”
In an additional development, the SEC has requested to set the deadline for its main brief to January 15, 2025. Furthermore, pro-XRP attorney John E. Deaton filed to appear as amicus counsel in the Second Circuit appeal. He told FOX Business journalist Eleanor Terrett, “Regardless of the Senate race, I will not walk away from my commitments.”
As of now, XRP is trading at $0.5255.
