Fintech firm Ripple has said that the U.S. Securities and Exchange Commission (SEC) hasn’t been able to provide that its sales of the $XRP token were investment contracts during the regulator’s lawsuit against it.

The SEC sued Ripple and two of its executives in 2020, alleging they sold unregistered securities when they issued $1.3 billion worth of XRP tokens. Ripple denies XRP is a security.

Earlier this year, Ripple’s CEO Brad Garlinghouse noted that he believed the company would prevail in its legal battle against the regulator. Over the past few weeks, a number of influential cryptocurrency firms, including Coinbase and the Blockchain Association, filed to support Ripple.

In a reply in support of a motion for summary judgment, Ripple’s lawyers argued that the regulator has failed to show that any offer or sale of XRP was an investment contract under federal securities laws. The motion reads:

“The SEC has, in any event, failed to carry its burden as to each of the three Howey elements. On the first element, investment of money, the SEC concedes that billions of units of XRP distributed by Defendants involved no investment of money at all…

Ripple’s lawyers added that even for transactions “that involved an exchange of money,” the SEC failed to “show that purchasers invested that money in a common enterprise” rather than “simply buying an asset,” as the Howey test requires.

The Howey test refers to a U.S. Supreme Court case for determining whether a transaction qualifies as an “investment contract” and is, as such, considered a security. If considered a security, it would be subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange act of 1934, according to Investopedia.

One of the test’s key elements is determine whether a transaction relies on an expectation of profit from the work of others. Ripple’s lawyers have said that the SEC failed to prove this expectation was there when it came to XRP purchases.

As CryptoGlobe reported, cryptocurrency investment products offering exposure to XRP have seen seeing significant inflows as the SEC’s case against Ripple has started being seen as “increasingly fragile” by investors.

Ripple settling the lawsuit could lead to an XRP supply shock, which presumably would lead to a price surge as demand would remain the same, while supply plunged. That’s according to legal expert and XRP supporter Jeremy Hogan, who has been following the case.

Hogan has recently weighed in on a ruling by the United States District Court in favor of the SEC against blockchain-based file-sharing network LBRY. The court LBRY violated securities laws by selling its native LBC tokens without registering with the Sec. Per Hogan, the results could make their way into the SEC’s final brief in the Ripple case.

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