SEC will seek to appeal the landmark Ripple decision on whether XRP is a security

SEC Chair Gary Gensler. Chip Somodevilla—Getty Images

The Securities and Exchange Commission said it will appeal a judge’s controversial Ripple decision, which found that sales of the XRP cryptocurrency did not constitute securities sale in certain circumstances, in a letter filed to the District Court for the Southern District of New York on Wednesday.

The mid-July ruling had represented a temporary victory for the embattled crypto industry, with Judge Analisa Torres finding that sales of Ripple’s XRP token did not constitute it as a security when sold programmatically, or through the open market.

The ruling had immediate ramifications, with prominent crypto exchanges rushing to re-list XRP. The SEC indicated it would appeal the decision, especially as a different SDNY judge expressed doubts over Torres’s arguments in a separate case. In its Wednesday letter, the SEC said it would seek an appeal of the judge’s holding on programmatic sales.

The Ripple case is one of the major battles in the nascent blockchain industry. Founded in 2012, Ripple is one of the highest-profile crypto companies, although its XRP token has come under fire from regulators as well as other digital assets firms. In 2020, the SEC charged the company with raising over $1.3 billion through an offering of unregistered digital asset securities.

Although many in the crypto industry argue that XRP differs from other popular cryptocurrencies such as Bitcoin and Ether due to its centralized structure, the case hinges on one of the central debates for the sector: whether cryptocurrencies should be regulated as securities or as commodities.

The judge’s ruling, which found that XRP by itself does not constitute a security and that sales of XRP were only securities sales when made to sophisticated investors, appeared to be an opening for the rest of the industry. The SEC currently has active lawsuits against major exchanges such as Coinbase and Binance for offering unregistered securities. Torres’s ruling, however, indicated that such programmatic sales would be outside the jurisdiction of the SEC.

The mid-July ruling was split, with Torres leaving some questions for a later jury trial, including whether two Ripple executives were liable for the unlawful offering and sale of securities. Earlier on Wednesday, she announced her intent to hold the trial in the second quarter of 2024. The fact that the case is not yet settled complicates the appeals process, prompting the SEC’s motion to seek leave to file an interlocutory appeal.

In its letter filed on Wednesday, the SEC said that it would seek to stay the court’s proceedings, including the scheduling order, during its motion and potential appeal. The agency argued that the order’s ruling was of consequence to other pending litigation, including against Coinbase, Binance, and Huobi founder Justin Sun. The agency also noted that a different SDNY judge had exhibited “substantial ground for difference of opinion” on the question of programmatic sales in a separate case involving Terraform Labs, the developer of the failed TerraUSD stablecoin.

According to the schedule set forward in the letter, Ripple’s response will be due Aug. 16, and the SEC will file its opening brief two days later. The appeal would be heard in the U.S. Court of Appeals for the Second Circuit.