Better Markets Backs SEC Appeal in Ripple Case, Citing Risks to Millions of Retail Investors

Better Markets, a non-profit financial markets organization, has submitted an amicus brief supporting the United States Securities and Exchange Commission (SEC) in its ongoing lawsuit against Ripple Labs Inc. The brief argues that Ripple’s XRP, the cryptocurrency issued by Ripple, qualifies as an investment contract under the Howey Test and should be classified as a security.

The filing, made on January 22, 2025, emphasizes the need for regulatory oversight to protect retail investors, citing legal inconsistencies in the district court’s prior ruling favoring Ripple. Better Markets criticized the district court ruling and pointed out that the decision was based on the definitions of securities in the statute, which is inaccurate and contradicts the prior legal rulings.

Better Markets pointed to the district court’s ruling as being at odds with the Supreme Court’s definition of an investment contract under the Howey Test. Also, the filing acknowledged the inconsistency of this decision with other courts decision in other cases involving similar matters.

Furthermore, the district court is also said to have erred in not taking into account the economic realities of the offer and sale of XRP. Especially Ripple’s marketing of XRP to the retail investor. It claimed that Ripple used investor anticipation of gains from its work, which supported the argument that XRP is a security.

Retail Investors Face Potential Risks Without Regulation
The filing also contained concerns as to the effect on the retail investors in case cryptocurrencies such as XRP are not governed by the securities laws. According to Better Markets, the district court’s ruling offers significant protections to institutional investors. It leaves retail investors exposed to risks in a highly volatile and largely unregulated market.

The organization added that, “Crypto investment offerings are still on the rise, especially with the participation of retail investors.” Furthermore, it highlighted that such offerings remain vulnerable to market manipulation, volatility, and illegal practices. This often result in significant losses for investors.

The legal battle between Ripple Labs and the U.S. Securities and Exchange Commission (SEC) has been one of the most significant crypto lawsuits to date. Beginning in December 2020, the case has shaped discussions around whether cryptocurrencies like XRP qualify as securities. With the recent filing of the SEC’s appeal and the anticipated crypto-friendly policies under Trump’s administration, this case could take a new turn in 2025. Here’s a detailed look at the Ripple SEC lawsuit, key developments, and what’s ahead for Ripple and the crypto industry.

What is the Ripple SEC Lawsuit About?
The SEC filed a lawsuit against Ripple Labs in December 2020, alleging that the company’s sale of its cryptocurrency, XRP, constituted an unregistered securities offering. According to the SEC, Ripple raised over $1.3 billion through these sales, violating federal securities laws.

Ripple, however, has consistently argued that XRP is similar to Bitcoin and Ethereum, which the SEC previously stated are not securities. Ripple also criticized the lack of clear regulatory guidance for cryptocurrencies.

Ripple SEC Lawsuit Details
Key Updates and Timeline to Date
1. December 2020: SEC Files Lawsuit
The SEC accused Ripple and its executives, Brad Garlinghouse (CEO) and Chris Larsen (Chairman), of violating securities laws by selling XRP without proper registration.
2. Ripple’s Defense:
Ripple argued that XRP is similar to Bitcoin and Ethereum, which the SEC previously stated are not securities. Ripple also criticized the lack of clear regulatory guidance for cryptocurrencies.
3. July 2023: Partial Victory for Ripple
In a landmark ruling, Judge Analisa Torres of the New York District Court decided:
Institutional Sales: XRP sold to institutional investors constituted unregistered securities offerings.
Retail Sales: XRP sold to retail investors through exchanges did not qualify as securities, as buyers did not expect profits from Ripple’s efforts.
This decision was celebrated by Ripple and the broader crypto community as a significant win.
4. The SEC Appeal (October 2024 - January 2025):
The SEC filed an appeal, challenging the court’s decision that retail sales were not securities. The agency argued that Ripple’s promotional efforts led retail investors to expect profits, which meets the Howey Test criteria for defining a security.
Ripple responded, calling the SEC’s arguments a “rehash of already failed claims,” with its Chief Legal Officer, Stuart Alderoty, predicting the case might be abandoned under a new administration.
5. Ripple’s Cross-Appeal:
Ripple also filed a cross-appeal, challenging the ruling that institutional sales were securities. Ripple seeks to solidify its defenses and protect its future operations.
Crypto News: Expected Changes Under Trump’s Pro Crypto SEC
With President Donald Trump set to take office, a significant shift in the SEC’s approach to crypto regulation is anticipated. Sources suggest that crypto-friendly commissioners Hester Peirce and Mark Uyeda, along with Trump’s SEC chair pick Paul Atkins, are likely to introduce a more innovation-focused regulatory framework. Key anticipated changes include:
Clarification on Crypto Securities:
The new SEC leadership may initiate rulemaking to provide clearer guidelines on when cryptocurrencies are classified as securities.
Revisiting Enforcement Actions:
Non-fraud cases, such as the Ripple lawsuit, could be frozen or dismissed, potentially ending the SEC’s action against Ripple.
Public Engagement:
A call for public and industry feedback is expected, paving the way for more inclusive crypto regulations.
Ripple executives, including Brad Garlinghouse, have welcomed this potential shift, calling the SEC’s current approach “anti-innovation” and expressing optimism about a “new era” for crypto regulation.
Potential Impacts of Trump’s Pro Crypto SEC on Ripple and Crypto
Ripple’s Case:
If non-fraud cases are deprioritized, the SEC’s lawsuit against Ripple could be dismissed or reopened for settlement negotiations.
A favorable outcome could reinforce XRP’s non-security status and boost its market value.
Regulatory Clarity:
Clearer guidelines could reduce regulatory uncertainty, benefiting Ripple and other crypto companies operating in the U.S.
Broader Industry Impact:
A pro crypto SEC could foster innovation and encourage companies to develop blockchain technologies within the U.S., reversing the trend of crypto firms relocating overseas.
Community and Industry Reactions:
Brad Garlinghouse: Criticized the SEC’s repetitive arguments, calling the agency’s actions under Gary Gensler “insanity.”
Stuart Alderoty: Expressed confidence that Ripple’s case would thrive under a pro-innovation regulatory environment.
Pro-Crypto Lawyers: Noted the weakness in the SEC’s evidence regarding retail investors and predicted a favorable outcome for Ripple.
What’s Next for Ripple and XRP Price?
The appeals process for the Ripple SEC lawsuit continues, with Ripple preparing for a prolonged battle. Ripple will have the opportunity to submit written counter-arguments, and the court may hold oral arguments before reaching a decision.
Ripple has also filed its own cross-appeal of the partial SEC victory in the lower court, challenging the $125 million civil penalty ordered by Judge Torres.
Despite the SEC’s appeal filing, XRP’s market performance has remained strong, with the cryptocurrency showing a 10% increase over 24 hours amid broader market gains.
The case continues to draw attention from various sectors of the financial industry, with multiple organizations filing amicus briefs to provide additional perspectives to the court. These briefs help judges understand the broader implications of their decisions.
Under the new SEC leadership, a crypto regulatory task force has been established, headed by Commissioner Hester Peirce. This development has been welcomed by industry participants who hope for clearer regulatory guidance.
In conclusion, the Ripple SEC lawsuit has significant implications for the crypto industry, with the outcome potentially shaping how digital assets are classified and regulated in the United States. As the case continues to unfold, investors and industry participants eagerly await the resolution of this high-stakes legal battle.