Better Markets, a prominent nonprofit organization, has recently aligned with the U.S. Securities and Exchange Commission (SEC) by submitting an amicus brief to the Second Circuit Court of Appeals, contesting a 2023 district court decision that exempted Ripple Labs’ XRP sales to retail investors from strict U.S. securities regulations.
The essence of the brief seeks a reconsideration of the court’s interpretation of the Howey Test—a crucial legal benchmark used to determine what constitutes an investment contract under U.S. securities law. Better Markets argues that the district court’s application of the Howey Test was flawed, potentially undermining the foundational investor protections the law aims to provide.
This ongoing legal battle between the SEC and Ripple Labs has garnered significant attention, signaling a watershed moment for the cryptocurrency industry. The ultimate decision could have far-reaching consequences for how digital assets are classified and regulated as securities in the United States.
An amicus brief, for those unfamiliar, serves as an informative document submitted by entities not directly involved in a case but with substantial interest or expertise in the subject matter. It aims to provide the court with additional perspectives or insights to aid in decision-making, particularly in appellate or public interest cases.
In its argument, the brief suggests that XRP’s trading activities on various exchanges should still fall under the securities category as defined by the Howey Test. It emphasizes that the nature of these transactions does not change simply because they occur on trading platforms, highlighting a misinterpretation of the economic realities underpinning Ripple’s operations by the district court.
Further critique by Better Markets points to a concerning loophole in the district court’s decision, which ostensibly offers less protection to retail investors compared to institutional counterparts—a discrepancy the organization urges the appellate court to rectify.
The backdrop of this legal saga began in December 2020, when the SEC initiated a lawsuit against Ripple Labs, its CEO Brad Garlinghouse, and co-founder Chris Larsen, accusing them of conducting over $1.3 billion in unregistered securities sales of XRP. The case has since evolved into a significant front in the SEC’s broader regulatory efforts under the stewardship of Chair Gary Gensler and, more recently, the anticipation of a potentially more crypto-friendly tenure under acting SEC Chair Mark Uyeda.
Criticism has not been shy from either side, with Better Markets CEO Dennis Kelleher being a vocal detractor of the cryptocurrency industry’s practices, denouncing them as fraudulent and injudicious. This legal and regulatory tussle, while complex, underscores the growing pains of an evolving cryptocurrency market seeking clarity and stability within a regulatory framework that is still in flux.