July 13, 2023 – Ripple Labs, the company behind the XRP cryptocurrency, scored a partial victory in its legal battle with the U.S. Securities and Exchange Commission (SEC) on Thursday (July 13).
In a U.S. District Judge Analisa Torres ruling, the court found that Ripple did not violate federal securities law by selling XRP on public exchanges. However, the court also found that Ripple’s sales of XRP to institutional investors constituted unregistered securities offerings. 1
The court also held that “XRP, as a digital token, is not in and of itself a ‘contract, transaction, or scheme’ that embodies the Howey Requirements of an investment contract.”2
The U.S. Securities and Exchange Commission (SEC) sued two of its top executives in December 2020 for selling XRP tokens, which the SEC classified as unregistered securities.
The ruling is a significant victory for Ripple, as it is the first time that a cryptocurrency company has won a case against the SEC. The ruling could also have implications for the broader cryptocurrency industry, as it provides some clarity on how the SEC will regulate digital assets.
Ripple is a real-time gross settlement system, currency exchange and remittance network that is open to financial institutions worldwide and was created by Ripple Labs Inc., a US-based technology company. “Released in 2012, Ripple is built upon a distributed open-source protocol and supports tokens representing fiat currency, cryptocurrency, commodities, or other units of value such as frequent flier miles or mobile minutes. 3
Following the ruling Ripple CEO Brad Garlinghouse said in a statement that the ruling was “a major win for not only Ripple but for the entire crypto industry.”
He added that the ruling “sends a clear message that the SEC cannot arbitrarily decide which tokens are securities.”
The SEC has yet to comment on the ruling.
The implications of the ruling for the cryptocurrency industry are still being debated. Some experts believe that the ruling could lead to more regulatory clarity for digital assets, while others believe that it could make it more difficult for companies to raise capital through token sales. 4
Implications
The ruling is a positive development for XRP, as it removes the uncertainty that had been hanging over the token. The ruling also paves the way for Ripple to continue selling XRP on public exchanges.
However, the ruling does not mean that XRP is completely safe from SEC regulation. The SEC could still bring charges against Ripple for other alleged violations of securities law.
The ruling could have implications for the broader cryptocurrency industry. The ruling provides some clarity on how the SEC will regulate digital assets. This could make it easier for companies to raise capital through token sales, as they will know what criteria the SEC will use to determine whether a token is a security.
However, the ruling could also make it more difficult for companies to raise capital through token sales. This is because the SEC’s definition of ‘security’ is very broad. As a result, companies may be hesitant to launch token sales, as they do not want to run the risk of being accused of violating securities law.
The SEC has not yet commented on the ruling. The SEC is expected to appeal the ruling. However, it is also possible that the SEC will accept the ruling and move on.
- Reuters: https://www.reuters.com/legal/us-judge-says-sec-lawsuit-vs-ripple-labs-can-proceed-trial-some-claims-2023-07-13/[↩]
- dechert: https://www.dechert.com/knowledge/onpoint/2023/7/in-major-ruling-celebrated-by-crypto-industry–federal-court-hol.html[↩]
- Wikipedia: Ripple (payment protocol) – Wikipedia[↩]
- binance: https://www.binance.com/en/feed/post/795243[↩]
