The United States Securities and Exchange Commission (SEC) has filed its much-awaited arguments in its appeal against #RipplešŸ’° ā€™s legal victory. 

In its opening brief submitted to the Court of Appeals for the Second Circuit on January 15, the SEC argued that a New York District Court was wrong to declare that Rippleā€™s programmatic sales on digital exchanges were not securities. 

The regulator also disputed the lower courtā€™s decision regarding Rippleā€™s XRP-related non-cash transactions, which were also deemed non-securities. 


SEC Faults District Courtā€™s XRP Programmatic Sales Ruling

Recall that U.S. District Judge Analisa Torres held in July 2023 that Ripple did not violate federal securities laws through its programmatic sales of XRP. This held as retail investors did not expect profit based on the companyā€™s efforts.

The judge cited affidavits from 3,000 XRP holders, who claimed they knew nothing about Ripple when they purchased the coin. 

In its opening brief, the SEC emphasized that Judge Torres erred in this reasoning. It contended that Ripple led retail investors to expect profit from their XRP investments through its public marketing campaign. According to the SEC, this campaign glorified the companyā€™s efforts to increase XRPā€™s price. 

Additionally, the SEC faulted the district courtā€™s position that required investors to know they were purchasing XRP from Ripple to expect profit based on the companyā€™s efforts. The regulator argued that this requirement is unnecessary, asserting an issuer can lead investors to expect profit via indirect sales. 

Furthermore, the SEC opines that this requirement undermines the Federal Securities Act established to protect investors. 

ā€œThe undisputed facts demonstrate that retail investors expected profits based on Rippleā€™s efforts regardless of whether they knew that they were purchasing from Ripple or its affiliates,ā€ the SEC remarked. 

Consequently, the SEC rebuked the district courtā€™s distinction of what retail and institutional investors were led to expect.