The US Securities and Exchange Commission (SEC) intends to appeal a July court ruling handed down by District Judge Analisa Torres in its ongoing case against Ripple Labs, the developer of the XRP cryptocurrency.
According to court documents filed on Wednesday, the SEC's appeal seeks to challenge the court's decision that Ripple's public offering of XRP tokens over cryptocurrency trading platforms did not involve the offer or sale of securities under the Howey Test.
Ripple Labs and the SEC have been butting heads for years over whether XRP should be classified as a security thus subject to the same regulations as a share offering.
Ripple Labs has countered this claim in court for the past three years.
In July, District Judge Analisa Torres ruled that XRP is sometimes a security, depending on the buyer. Specifically, the court determined that XRP was a security when sold to institutional investors but not necessarily when purchased by average individuals on public exchanges.
This distinction was based on the expectation of profits; institutional buyers expected profits from Ripple's efforts, while public exchange buyers may not have expected profits.
Under the Howey Test established in the 1940s, a security contract is defined as any agreement between a promoter and an investor where the investor expects a return based on the promoter's efforts.
Applying this to the digital age, the court had to decide whether buying XRP with the expectation of profit, driven by Ripple's actions, constituted an investment contract.
Both the SEC and Ripple Labs have claimed victories in the long-running case. The SEC successfully argued that XRP is a security at the institutional level, while Ripple Labs convinced the court that XRP is not a security at the retail level.
The case continues, with both sides preparing for a potential trial.
Ripple Labs is far from the only cryptocurrency institution in the SEC’s crosshairs.
In 2023 alone, the hawkish securities watchdog has launched legal proceedings against major crypto exchanges Kraken, Coinbase (NASDAQ:COIN) and Binance for alleged breaches of securities laws.