Crypto’s Victory? A Quick Overview of the Case of SEC vs. Ripple
News Summary
On March 19, 2025, Ripple’s CEO Brad Garlinghouse posted on the X platform to announce that the U.S. Securities and Exchange Commission (SEC) will abandon its appeal against Ripple. In July 2023, a court ruled that XRP itself does not constitute a security, although some direct sales to institutional investors might have violated securities laws. Subsequently, the SEC attempted to appeal multiple times, but all appeals were rejected by the court. If the SEC ultimately decides to abandon its appeal, it will completely end this legal tug-of-war that has lasted four and a half years. After the announcement, market sentiment quickly warmed, and the price of XRP promptly rose by 10%, briefly breaking through $2.49. This victory is not only a milestone for Ripple but also a landmark event in the U.S. crypto industry’s challenge to SEC regulation.
Event Review
Phase One: The Onset of Turmoil
On December 22, 2020, the U.S. Securities and Exchange Commission (SEC) formally filed a lawsuit against Ripple Labs and its two top executives, accusing them of raising over $1.3 billion through an unregistered securities offering. The SEC believed that since 2013, Ripple had conducted an unregistered securities offering by selling XRP tokens, in violation of securities registration regulations. Ripple’s co-founder Christian Larsen and current CEO Brad Garlinghouse were also accused of being involved in this activity, with unregistered sales totaling approximately $600 million.
The core of the SEC’s allegations lies in the nature of the XRP token; the SEC argued that XRP meets the criteria of the Howey Test and should be classified as a security. The Howey Test includes four elements: investment of funds, a common enterprise, the expectation of profits, and reliance on the efforts of others. The SEC believed that the sale of XRP met these conditions, especially since investors relied on Ripple’s efforts to generate returns. Ripple, however, firmly denied that XRP could pass the Howey Test, emphasizing that it is a utility token primarily used for cross-border payments, and that its nature is similar to Bitcoin and Ethereum, suggesting that the SEC is selectively enforcing regulations in the cryptocurrency industry. The SEC’s tough stance combined with Ripple’s resolute defense set the stage for this legal tug-of-war that lasted four and a half years.
Phase Two: The Initial Victory
On July 13, 2023, Judge Analisa Torres of the U.S. District Court for the Southern District of New York issued a ruling in the Ripple case, announcing Ripple’s initial victory. The court divided the sales scenarios of XRP into three categories: employee compensation and developer incentives, direct sales to institutional investors, and programmatic sales in the public market. For the first category, the court held that the distribution of XRP as labor remuneration or development incentives did not involve the “investment of funds” element, as employees and third-party developers did not pay consideration; therefore, it did not constitute an investment contract and was not subject to SEC regulation. For the second category, the court determined that the $728 million XRP sold directly to institutional investors by Ripple constituted an “investment contract.” By analyzing Ripple’s marketing materials, contractual terms, and the use of funds, the court believed that institutional investors had reasonable grounds to expect profits from Ripple’s corporate efforts (such as technological development and market promotion), meeting the Howey Test element of “expected profits derived from the efforts of others.” For the third category, retail transactions in the public market did not meet the definition of a security because the buyers and sellers were anonymous and lacked direct economic ties, and investors could not reasonably expect profits to come solely from Ripple’s unilateral efforts. Ultimately, the court issued a summary judgment, requiring Ripple to pay a civil fine of $125 million. This amount was only 6% of the SEC’s initial allegation, but far exceeded Ripple’s claimed cap of $10 million.
Phase Three: SEC’s Appeal and Consolidation of the Ruling
Dissatisfied with the “exemptions” for employee compensation and developer incentives and programmatic sales in the public market, the SEC filed an interlocutory appeal in October 2023, relying on the contrary ruling by Judge Jed Rakoff of the Southern District of New York in the SEC v. Terraform Labs case (which determined that the stablecoin UST sold by an exchange constituted a security) in an attempt to overturn that portion of the district court’s ruling.
On October 3, 2024, Judge Analisa Torres dismissed the SEC’s motion to appeal, clearly stating that her ruling did not conflict with the Terraform Labs case and upheld the conclusions regarding the exemptions for programmatic sales and employee compensation and developer incentives. In her reasoning, Judge Torres clarified the lack of conflict between the two cases by two points: first, Ripple’s profit promise was directed solely at institutional investors and did not extend to the public market, whereas Terraform uniformly claimed to both retail and institutional investors that “all funds raised would be used to generate profits”; second, in the Ripple case, there was clear evidence proving that retail investors could not reasonably expect the company to generate profits for them, which is fundamentally different from the comprehensive promises made in the Terraform case. In the same month, the SEC submitted a formal Notice of Appeal to the U.S. Court of Appeals for the Second Circuit, requesting a comprehensive review of the criteria for determining the securities status of XRP, but later, in March 2025 (the publication time of the aforementioned news), withdrew the appeal.
FinTax Commentary
SEC’s abandonment of its appeal against Ripple represents yet another representative event in the shift of U.S. crypto regulatory stance since Trump’s return to the White House, and the presiding judge’s reasoning on the nature of cryptocurrencies will also serve as a demonstration for future judicial rulings in the United States. In the 2023 ruling, Judge Analisa Torres introduced the “scenario segmentation” principle, binding the legal nature of cryptocurrencies to their sales scenarios—sales to institutions, due to explicit profit commitments, are classified as securities, whereas anonymous transactions in the public market are exempted due to the lack of the “reliance on the efforts of others” element. This scenario-based differentiation refutes the SEC’s one-size-fits-all approach of qualitative determination based on technological attributes, instead focusing on specific legal details such as contractual relationships within the transaction chain. From another perspective, the SEC’s more than two-year-long appeal process was essentially an effort to maintain its regulatory authority, and this withdrawal of the appeal precisely proves that the SEC’s one-size-fits-all enforcement logic can no longer withstand the combined pressures of the judiciary, politics, and the market.
Behind the compromise lies the combined influence of political maneuvering and market forces. Ripple actively engaged in political lobbying during this presidential election. Political Action Committees (PACs) and Super PACs are the core mechanisms connecting corporations with power in the U.S. political system, allowing businesses to influence policy-making through donations. Ripple donated over $70 million to a Republican Super PAC and funded Trump’s inauguration fund with $5 million, which inevitably influenced the Trump administration’s lenient policies on cryptocurrencies, weakened the SEC’s enforcement drive, and the presidential nominee Paul Atkins, who supports crypto assets, being appointed as SEC Chairman is a concentrated manifestation of this political influence reshaping regulatory logic; at the same time, market choices accelerated the regulatory retreat, with Bitnomial launching XRP futures regulated by the CFTC, and Coinbase reopening XRP trading in 2024. Cryptocurrencies have already been widely used in everyday life, and the SEC’s previous regulatory policies have evidently lagged behind the times.
However, the conclusion of the case does not resolve all conflicts. On one hand, the judgment of a $125 million fine may still be appealed by Ripple; on the other hand, the securities classification that the SEC obtained support for in the Terraform Labs case, although overturned by the “scenario segmentation” ruling in this case, cannot be ruled out as binding in other cases. If other circuit courts issue similar rulings in similar cases, the compliance status of XRP may once again be shaken. Overall, although judicial discrepancies and political maneuvering still exist in the short term, the SEC’s withdrawal of the appeal has sent a clear signal that market evolution and technological innovation are forcing regulatory model upgrades. If the United States can seize this opportunity to reconstruct its institutional advantages, solidify the “scenario-based regulation” precedent as a legislative principle, and establish a coordinated mechanism between the SEC and the CFTC, it may further consolidate its centralized leadership in the wave of decentralization.