Judge Rules in Favour of Ripple as SEC Case is Dismissed, Affirming XRP Is Not a Security
Mitchell Nixon
In a significant legal triumph for the cryptocurrency industry, a U.S. judge ruled on Thursday that Ripple Labs Inc had not violated federal securities law by selling its XRP token on public exchanges.
This landmark ruling by the U.S. District Judge Analisa Torres marked the first victory for a cryptocurrency company in a case initiated by the U.S. Securities and Exchange Commission (SEC).
Although the ruling pertains specifically to the circumstances of this case, it is expected to provide support for other crypto firms engaged in legal battles with the SEC regarding the jurisdiction of their products.
Notably, the SEC achieved a partial victory as the judge determined that Ripple had breached federal securities law by directly selling XRP to sophisticated investors.
Consequently, a trial has been ordered to examine the involvement of Ripple’s executives in these sales.
The ruling had a profound impact on the value of XRP, causing a significant surge:
The daily shows as much as a 100% rally, with XRP currently up roughly 74% as of writing.
Following the news release, the price of XRP experienced a rapid surge, soaring from $0.45 to $0.61 within a few minutes.
Since December 2020, Ripple has been embroiled in a prolonged legal battle with the SEC after being sued alongside its two top executives, Brad Garlinghouse and Chris Larsen, for allegedly offering an unregistered security.
Over the course of the past three years, this case has witnessed several captivating twists, such as the emergence of the “Hinman Documents” and Garlinghouse’s persistent defiance in response to the SEC’s accusations.
However, today is a fine day for those XRP holders and investors.
Based on documents submitted on July 13, Judge Torres has issued a favourable summary judgement for Ripple Labs, affirming that the XRP token is not classified as a security.
The lawsuit filed by the SEC aimed to enforce Ripple’s cessation of offering the XRP token, claiming that it constituted a security and necessitated additional regulatory measures.
Per court documents:
“Defendants’ motion for summary judgement is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales.”
But more importantly, a win for the entire cryptocurrency industry.
The cryptocurrency industry has been closely monitoring this case, as it challenges the SEC’s claim that the majority of cryptocurrency tokens are securities and should be subject to the agency’s stringent investor protection regulations. Although the SEC has initiated over 100 crypto-related enforcement actions, alleging the securities status of various tokens, many of these cases have concluded through settlements.
In the limited instances where the cases have proceeded to court, judges have generally sided with the SEC, deeming the cryptocurrency assets in question as securities.
Judge Torres determined that Ripple’s sale of XRP on public cryptocurrency exchanges did not constitute the offering of securities under the law. She argued that purchasers did not possess a reasonable expectation of profit linked to Ripple’s efforts. The transactions in question were characterised as “blind bid/ask transactions” in which buyers were unaware if their payments were directed to Ripple or any other XRP seller.
To reach her decision, Torres applied a precedent set by a U.S. Supreme Court case, which categorised an investment involving the contribution of money to a common enterprise with anticipated profits solely derived from the efforts of others as an investment contract, a type of security.
Additionally, Torres ruled that XRP sales on cryptocurrency platforms by Ripple CEO Brad Garlinghouse, co-founder and former CEO Chris Larsen, as well as other distributions involving employee compensation, did not fall within the scope of securities.
Tokens that have received pressure from lawsuits involving the SEC such as Solana (SOL) and Polygon (MATIC) are up as much as 20-25% as well following the news.
A big win for the industry.
Not only could this bolster the ETF case, but the lawsuit against Coinbase which is fighting its own SEC case, and has entered a surveillance-sharing agreement with many of the institutions applying for ETFs.
Gary has a fight on his hands!