The legal dispute between Ripple Labs, Inc. and the US Securities and Exchange Commission (SEC) witnessed a surprising development as Better Markets, Inc., a prominent nonprofit dedicated to promoting public interest in financial markets, filed an amicus curiae brief on January 22. This latest submission to the United States Court of Appeals for the Second Circuit vehemently supports the SEC’s appeal against a prior district court decision, which narrowly defined the term “investment contract” and its applicability to XRP.
In the brief, Better Markets criticizes the district court’s interpretation of the Howey test, traditionally used to determine whether a transaction qualifies as an investment contract and thus a security. According to Better Markets, the lower court’s ruling improperly excluded XRP tokens sold through secondary markets from securities regulation, focusing narrowly on the direct purchase from the issuer as a criterion for classification.
#XRPCommunity #SECGov v. #Ripple #XRP @Ripple Better Markets Inc. has filed an Amicus Brief in Support of the @SECGov.https://t.co/cu8lTLBqtM
— James K. Filan
(@FilanLaw) January 22, 2025
A Last Call Against Ripple And XRP
The brief from Better Markets asserts, “The district court dramatically narrowed the definition of an ‘investment contract,’ removing a vast number of crypto offerings and potentially many other investments from the reach of the securities laws.” They argue that this interpretation contradicts longstanding legal principles that aim to adapt to evolving financial practices and protect investors from emerging risks.
Highlighting a critical error, the brief points out, “The court’s ruling on the status of these secondary sales or ‘Programmatic’ transactions under Howey was erroneous.” Better Markets emphasizes that the nature of an investor’s acquisition does not change the fundamental expectation of profits derived from the efforts of others, a cornerstone of the Howey test.
Better Markets challenges the district court’s understanding of the economic realities surrounding Ripple’s token sales, particularly the influence of Ripple’s marketing and promotional efforts on investor expectations. The brief notes, “Ripple conducted a sales campaign through a wide variety of primers, brochures, market reports, public interviews, press conferences, and social media platforms…Most were publicly disseminated or publicly available.”
The organization also criticizes the district court’s assumption about the sophistication of retail investors, stating, “The district court’s dim view of retail investors ignores modern day economic realities…Many retail investors are exposed to new investment offerings and trends through social media platforms that promoters increasingly rely on to attract investors’ funds.”
The brief starkly warns of the implications for investor protection if the district court’s decision stands, highlighting the potential for widespread predation in the crypto securities market, which would disproportionately affect less sophisticated retail investors. Better Markets argues, “Without jurisdiction over these types of securities, the SEC will lose its ability to protect these two classes of investors—those who trade on exchanges and those who lack sophistication—from the widespread predations in the crypto securities markets.”
However, it is highly questionable whether the letter will have any significance at all. Mark Uyeda’s recent appointment as the acting Chair of the US Securities and Exchange Commission (SEC) has sparked speculation about a potential resolution to the SEC’s lawsuit against Ripple under Uyeda’s interim leadership.
Notably, the SEC has scheduled a closed-door meeting under Uyeda’s leadership for today, January 23 which further fueled speculation on the future of Ripple’s legal case. Rumors suggest that the SEC’s upcoming meetings could address settlement possibilities, potentially impacting Ripple’s legal trajectory.
At press time, XRP traded at $3.14.
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