'Retail XRP Sale Did Not Violate US Law': Ripple Wins Fight against SEC

In a landmark judgment yesterday (Thursday), a US court ruled that XRP's token sale to retail investors on public exchanges did not violate the securities law. However, the token sale to sophisticated investors did violate federal securities law.

Ripple Wins against SEC

The judgment market has a massive partial win for Ripple, which has been fighting the legal battle with the US Securities and Exchange Commission (SEC) since December 2020. It will impact other crypto companies engaged in a legal fight with the American regulator.

The ruling by US District Judge Analisa Torres stated that XRP sales on public exchanges were not securities as retail investors did not have any reasonable expectation of profits from the efforts of Ripple as a company. It was a “blind bid/ask transactions,” and the retail buyers “could not have known if their payments of [the] money went to Ripple or any other seller of XRP.”

Further, XRP sales by Ripple’s CEO, Brad Garlinghouse and the Co-Founder and former CEO, Chris Larsen on cryptocurrency platforms and compensation to employees did not include securities.

The most important part of this ruling: “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.” This is a now a matter of law (not up for trial.)

Partial Win for the SEC

However, the judgment additionally handed out partial victory to the US securities regulator. According to Judge Torres’ ruling, selling $728.9 million of XRP tokens to hedge funds and other sophisticated falls under unregistered securities.

While marketing to institutional investors, Ripple “was pitching a speculative value proposition for XRP” that depended on the company’s ability to develop a blockchain infrastructure.

Now, it is with the jury to decide if Garlinghouse and Larsen violated the federal securities law.

At this time, it is not confirmed if the SEC or Ripple is willing to appeal against the decision. But, many industries pointed out that it is likely.

The only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court’s order.

The Markets Reacted

The volatile cryptocurrency market reacted quickly after the judgment, which untangled massive confusion around the legality of cryptocurrencies. The market price of XRP jumped by 66 percent in the last 24 hours.

Other companies also benefited from the court’s judgment as Coinbase closed Thursday’s trading with a jump of 24 percent in its share price. Coinbase further confirmed that it will relist XRP. Gemini is another exchange willing to relist the XRP token.

Coinbase will re-enable trading for XRP (XRP) on the XRP network. Do not send this asset over other networks or your funds may be lost. Transfers for this asset remain available on @Coinbase & @CoinbaseExch in the regions where trading is supported.

On the other hand, Kraken remained ahead of its US competition, enabling XRP trading for its US customers late Thursday.

"This is a moment of celebration for the cryptocurrency industry as digital tokens have been recognized in court as separate and apart from investment contracts. However, it is also a call to Congress that the absence of clear and responsible regulation for crypto will continue to result in confusion and drawn out litigation. It is time for the U.S. to establish a comprehensive framework that regulates crypto as a unique, varied asset class that is here to stay," said Alex Adelman, CEO and co-founder of Lolli.