- Better Markets backs SEC, emphasizing XRP meets Howey Test for securities.
- Ripple faces SEC appeal after 2023 ruling exempted XRP retail sales from securities laws.
- SEC claims Ripple’s marketing created profit expectations, defining XRP as a security.
Washington-based non-profit Better Markets has submitted an amicus brief supporting the U.S. Securities and Exchange Commission (SEC) in its appeal against Ripple Labs. The filing emphasizes that Ripple’s XRP qualifies as a security under the Howey Test, countering the 2023 district court ruling that exempted XRP retail sales from securities laws. The non-profit also pointed out that the court misapplied legal standards, creating new risks for retail investors and undermining the regulatory framework.
The brief claims that XRP sales on trading platforms qualify as investment contracts under the Howey Test. Better Markets argued that investors’ anticipation of earnings from promotions makes it right to categorize Ripple as a security. Furthermore, the organization also pointed out that the court relied on the statutory definitions while ignoring the economics of the XRP transactions, especially the risk to the average individual investor.
Concerns Over Retail Investor Protections
Better Markets raised concerns about the impact that the court’s ruling would create risks for retail investors and that the decision resulted from an unregulated market. The brief disclosed that the rule discriminates against retail investors and leaves them vulnerable to market risks, including volatility, manipulation, and fraud.
The non-profit noted that Ripple marketed its XRP in a way that would lead retail investors to associate its price with the company’s operations. It also expressed concern that the district court’s ruling could increase the number of unregulated digital asset products available to retail investors without protections.
The brief also highlighted that retail investors contribute more to the cryptocurrency markets and called for proper regulation to reduce losses. Better Markets urged the appellate court to address these issues and deserve the ruling to align with the securities laws.
Ripple’s Legal Battle
The legal battle between the SEC and Ripple Labs has been ongoing since December 2020 when the SEC accused Ripple of selling over $1.3 billion of XRP without registering it. As of 2023, a district court decided that XRP retail sales were not unlawful under securities laws, whereas institutional sales were found unlawful. The SEC filed a formal appeal of the retail sales decision in October 2024, and Better Markets became a party to the case in support of the regulatory role.
The decision in this appeal has major consequences for the cryptocurrency industry, as it may change the parameters of digital currencies under federal securities laws. Dennis Kelleher, the CEO of Better Markets, has been an outspoken opponent of the crypto industry, calling it a “lawless sector.” He stressed that the outcome of the appeal is important to safeguard investors and maintain transparency in the growing emerging digital asset sector.
