Better Markets Urges Appeals Court to Back SEC in Ripple Case

Non-profit firm Better Markets has thrown its weight behind the U.S. Securities and Exchange Commission (SEC) by filing an amicus brief in its appeal against Ripple Labs. 

The brief asks the Second Circuit Court of Appeals to overturn a 2023 district court ruling that deemed Ripple’s XRP sales to retail investors exempt from U.S. securities laws.

The non-profit flagged the decision in its brief, stating the court misapplied the Howey Test and jeopardized the integrity of investor protections.

The ongoing SEC vs Ripple case has far-reaching implications for the crypto industry, as it could define how digital assets are classified under securities laws.

An amicus brief is a legal document filed by a non-party with a strong interest in a case, offering information or perspectives to assist the court's decision, often in appellate or public interest cases.

The brief states XRP’s sales on exchanges still qualify as a security under the Howey Test, flagging how “investors’ acquisition of those securities on trading platforms does not alter their character as such.”

The organization pointed to how the district court overlooked the economic realities of Ripple’s operations, stating investors clearly expected profits from Ripple’s promotional efforts. 

It also warned the decision weakens investor protections by creating a loophole for digital asset sales, leaving retail traders at greater risk.

“The district court’s decision has the perverse effect of protecting institutional investors but not retail investors,” Better Markets noted, calling for the appellate court to correct this imbalance. 

Ripple’s marketing strategies, which included extensive promotion of XRP’s potential value, were designed to entice retail buyers and create expectations of profit tied to Ripple’s efforts, the brief stated.

A brief history

The SEC initially filed its lawsuit in December 2020, accusing Ripple, CEO Brad Garlinghouse, and co-founder Chris Larsen of raising over $1.3 billion through unregistered XRP sales. 

The case was launched under former SEC Chair Jay Clayton and intensified under Chair Gary Gensler’s leadership, as the agency argued that XRP meets the Howey Test criteria for investment contracts.

In 2022, crypto exchange Coinbase filed its own amicus brief in support of Ripple but focused primarily on the SEC’s lack of clear guidance for digital assets. 

The exchange flagged that XRP’s delisting from major platforms after the lawsuit caused a $15 billion market loss.

Ripple initially gained ground in July 2023 when a district court ruled XRP sales to retail investors on exchanges did not violate securities laws. 

However, the same court found Ripple liable for $125 million in August 2024, declaring that institutional XRP sales breached securities regulations. 

The SEC formally appealed the retail sales decision in October 2024, saying Ripple’s marketing created clear profit expectations among investors, satisfying the Howey framework. It was then followed by Ripple’s cross-appeal.

The regulatory agency intensified its fight against Ripple Labs by filing a more detailed appeal last Wednesday, building upon its initial notice of appeal from October.

The Ripple case has also shed light on Gensler’s contentious approach to crypto enforcement. Critics have accused Gensler of using Ripple as a high-profile example to assert regulatory authority over the crypto industry. 

With Gensler stepping down, pro-crypto acting SEC Chair Mark Uyeda is expected to take a more friendly approach than his predecessor, fueling speculation that a settlement could be on the horizon.

Better Markets CEO Dennis Kelleher has a history of vocal opposition to crypto, frequently criticizing the industry’s “lawless business model” and labeling it as a "fraud on the public." 

Last January, Kelleher sent a strongly worded letter to the SEC, urging it to reject applications for spot Bitcoin exchange-traded funds (ETFs), saying the agency would be making a “grave if not historic mistake.”

Edited by Sebastian Sinclair