A victory for crypto? A quick look at the SEC v. Ripple case

Author: FinTax

News Introduction

On March 19, 2025, Brad Garlinghouse, CEO of Ripple, announced on the X platform that the U.S. Securities and Exchange Commission (SEC) will abandon its appeal against Ripple. In July 2023, the court ruled that XRP itself does not constitute a security, but some of its direct sales to institutional investors may violate securities laws. Since then, the SEC has attempted to appeal several times, but all have been rejected by the court. If the SEC ultimately decides to abandon the appeal, it will completely end this four-and-a-half-year legal tug-of-war. After the news was announced, market sentiment quickly heated up, and the price of XRP rose by 10%, temporarily breaking through $2.49. This victory is not only a milestone for Ripple, but also a landmark event for the U.S. crypto industry to challenge SEC regulation.

Review of the event 

Phase I: The beginning of the storm 

On December 22, 2020, the U.S. Securities and Exchange Commission (SEC) formally filed a lawsuit against Ripple Labs and its two executives, accusing them of raising more than $1.3 billion through unregistered securities offerings. The SEC believes that Ripple has violated the registration provisions of the Securities Act by selling XRP tokens since 2013 in an unregistered securities offering. Ripple's co-founder Christian Larsen and current CEO Brad Garlinghouse have also been accused of participating in this practice, with unregistered sales totaling approximately $600 million. The core of the SEC's allegations lies in the nature of the XRP token. The SEC believes that XRP meets the Howey Test and should be classified as a security. The Howey Test includes four elements: investment funds, common enterprise, expected returns, and reliance on the efforts of others. The SEC believes that the sale of XRP meets these conditions, especially investors rely on Ripple's efforts to obtain returns. Ripple firmly denied that XRP could pass the Howey test, emphasizing that it is a functional token mainly used for cross-border payments, and its nature is similar to Bitcoin and Ethereum. The SEC is suspected of selective enforcement of the cryptocurrency industry. The SEC's tough attitude and Ripple's resolute defense kicked off this four-and-a-half-year legal tug-of-war. Phase II: Initial Victory On July 13, 2023, Judge Analisa Torres of the United States District Court for the Southern District of New York announced the ruling on the Ripple case, announcing Ripple's initial victory. The court divided the sales scenarios of XRP into three categories: employee compensation and developer incentives, institutional direct sales, and open market programmatic sales. For the first item, the court held that the distribution of XRP as labor remuneration or development rewards did not involve the "capital investment" requirement, and employees and third-party developers did not pay consideration, so it did not constitute an investment contract and was not subject to SEC supervision; for the second item, the court determined that the $728 million of XRP sold directly by Ripple to institutional investors was an "investment contract". By analyzing Ripple's marketing materials, contract terms and the use of funds, the court held that institutional investors had reasonable grounds to expect to profit from Ripple's corporate efforts (such as technology development and marketing), which met the "expected profits from the operation of others" requirement of the Howey test; and for the third item, retail transactions in the open market did not meet the definition of securities because the buyers and sellers were anonymous and lacked direct interest relations, and investors could not reasonably believe that the profits came from Ripple's unilateral operation. In the end, the court made a summary judgment (Summary Judgment), requiring Ripple to pay a civil penalty of $125 million. This amount is only 6% of the amount initially charged by the SEC, but far exceeds the $10 million limit claimed by Ripple.  

Phase 3: SEC Appeal and Ruling Consolidation 

The SEC was dissatisfied with the "exoneration" of employee compensation, developer incentives and open market programmatic sales, and filed an interlocutory appeal in October 2023. The appeal cited the ruling of Judge Jed Rakoff of the Southern District Court of New York in the SEC v. Terraform Labs case, which was contrary to Judge Torres's ruling (determining that the stablecoin UST sold by the exchange constituted a security), attempting to overturn this part of the district court's ruling.  

On October 3, 2024, Judge Analisa Torres rejected the SEC's appeal motion, clarifying that there was no legal conflict between her ruling and the Terraform Labs case, and maintaining the conclusion of the exemption of programmatic sales and employee compensation and developer incentives. In the judgment, Analisa Torres clarified that there was no conflict between the two cases through two points: first, Ripple's profit promise was only delivered to institutional investors and not spread in the open market, while Terraform uniformly declared to retail investors and institutions that "all purchase funds will be used to create profits"; second, there is clear evidence in the Ripple case that retail investors cannot reasonably expect the company to make profits for them, which is fundamentally different from the comprehensive promise in the Terraform case. That month, the SEC submitted a formal notice of appeal to the Federal Second Circuit Court, requesting a comprehensive review of XRP's securities qualification standards, and then withdrew the appeal in March 2025, the time when the above news was released.  

FinTax Comments 

SEC's abandonment of the appeal against Ripple is another representative event of the change in the US crypto regulatory attitude after Trump returned to the White House, and the presiding judge's judgment on the nature of cryptocurrency will also have a demonstrative effect on future judicial decisions in the United States. Judge Analisa Torres proposed the "scenario cutting" principle in her 2023 ruling, binding the legal nature of cryptocurrency to its sales scenario - institutional sales are identified as securities due to the existence of clear interest commitments, while anonymous transactions in the public market are exempted due to the lack of "dependence on the efforts of others". This scenario-based distinction denies the SEC's one-size-fits-all qualitative approach based on technical attributes, and instead focuses on specific legal details such as contractual relationships in the transaction chain. From another perspective, the SEC's two-year-long appeal process is essentially a maintenance of its own regulatory authority, and this withdrawal of the case proves that the SEC's one-size-fits-all enforcement logic is no longer sustainable under the triple pressure of justice, politics and the market. Behind the compromise is the result of the joint action of political games and market forces. Ripple actively participated in political lobbying during this presidential election. Political Action Committees (PACs) and Super PACs are the core mechanisms connecting companies and power in the American political system, allowing companies to influence policy making through donations. Ripple donated more than $70 million to the Republican Super PAC and funded Trump's inauguration fund with $5 million, which is bound to affect the Trump administration's loose policy on cryptocurrencies and weaken the SEC's enforcement power. The president's nomination of Paul Atkins, who supports crypto assets, as SEC chairman is a concentrated reflection of this political influence on reshaping regulatory logic; at the same time, market choices have accelerated regulatory concessions. Bitnomial has launched XRP futures regulated by the CFTC, and Coinbase has reopened XRP trading in 2024. Cryptocurrencies have been widely used in life scenarios, and the SEC's previous regulatory policies have been unable to keep up with the times. However, the end of the case is far from resolving all contradictions. On the one hand, the $125 million fine may still be appealed by Ripple; on the other hand, although the SEC's securities determination in the Terraform Labs case was overturned by the "scenario-based distinction" judgment in this case, its binding force in other cases cannot be ruled out. If other circuit courts make similar judgments in similar cases, XRP's compliance status may be shaken again. In general, although judicial differences and political games still exist in the short term, the SEC's withdrawal of the lawsuit has sent a clear signal that market evolution and technological innovation are forcing the upgrade of the regulatory model. If the United States can take this opportunity to reconstruct its institutional advantages, solidify the "scenario-based regulation" case law into a legislative principle, and establish a coordination mechanism between the SEC and the CFTC, it may further establish its centralized leadership in the wave of decentralization.