On Wednesday, January 15, the SEC appealed a decision by District Judge Analisa Torres in the SEC's civil case against Ripple Labs, Inc. Judge Torres' decision was published in July 2023, and as was widely reported at the time, concluded that Ripple's XRP token was an investment contract (and therefore subject to the SEC's registration requirements) when Ripple sold them to institutional investors, but that they were not investment contracts when Ripple sold them to retail investors because, generally speaking, the retail investors did not know they were buying XRP from Ripple. 

In hindsight, the SEC arguably did not adequately address this distinction at the trial level. Despite the fact that Ripple had introduced much evidence at trial showing that certain investors did not know they were buying XRP from Ripple (and therefore, according to Ripple, could not have reasonably expected that Ripple would use their money to improve the XRP ecosystem and thereby increase the XRP price), the SEC did not do much at trial to counter that point. Ultimately, this proved central to the District Court's decision, so the SEC's appellate brief focuses much attention on cleaning that up. 

Aside from arguing that retail XRP investors did believe Ripple would use their capital in ways that would lead to investment returns, the SEC's appellate brief primarily argues that the District Court was just wrong in determining that an investor actually needs to know they are buying coins from an issuer in order for a coin to qualify as an investment contract that should have been registered. Here, the brief is largely a re-litigation of the issues raised at trial (on an issue that the SEC lost). It also comes across somewhat half-hearted, but this may not be a wasted effort (if the SEC continues to pursue this appeal at all under the new Administration). 

That is because several courts facing similar (but slightly different) facts following the 2023 Ripple decision have come to the opposite conclusion, finding that investors do not need to know they are buying coins from an issuer (nor do they need to buy from the issuer at all) in order for coins to qualify as investment contracts. Like the Ripple case, one of those subsequent cases was in the Second Circuit, and expressly rejected the reasoning in the Ripple decision. Therefore, the SEC may believe that the Second Circuit Court of Appeals will simply be more persuaded by the logic of the other courts and judges. Those cases all involved important factual differences, though, so it is not clear that the Appellate Court would do so. 

Ultimately, the fate of the Ripple case may be decided by whether the SEC decides to continue appealing this case at all under the Trump Administration. If the agency does not, that would certainly be a win for Ripple, but it would leave the rest of the market in a state of continued uncertainty as to whether similar offerings or sales are subject to the securities laws.