A Groundbreaking Verdict
In a landmark ruling that has sent ripples through the cryptocurrency industry, U.S. District Judge Analisa Torres declared that Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges. This decision, the first of its kind in favor of a cryptocurrency company in a case brought by the U.S. Securities and Exchange Commission (SEC), has led to a significant surge in the value of XRP, which was up by 75% by late afternoon on the day of the ruling.
The Implications of the Ruling
While the decision is specific to the facts of the Ripple case, it is likely to provide ammunition for other crypto firms battling the SEC over whether their products fall under the regulator’s jurisdiction. An SEC spokesperson expressed satisfaction with part of the ruling in which the judge held that Ripple violated federal securities law by selling XRP directly to sophisticated investors. However, the ruling can be appealed once a final judgment is issued, or if the judge allows it before then.
Ripple’s Reaction to the Verdict
Ripple Chief Executive Brad Garlinghouse hailed the ruling as “a huge win for Ripple but more importantly for the industry overall in the U.S.” In response to the verdict, Coinbase, the largest U.S. crypto exchange, announced that it would again allow trading of XRP on its platform. Coinbase’s stock closed up 24% at $107 per share on the day of the ruling.
The SEC’s Case Against Ripple
The SEC had accused Ripple and its current and former chief executives of conducting a $1.3 billion unregistered securities offering by selling XRP, which Ripple’s founders created in 2012. The case has been closely watched in the cryptocurrency industry, which disputes the SEC’s assertion that the vast majority of crypto tokens are securities and subject to its strict investor protection rules.
The Judge’s Reasoning
Judge Torres ruled that Ripple’s XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts. She applied a U.S. Supreme Court case that said “an investment of money in a common enterprise with profits to come solely from the efforts of others,” is a kind of security called an investment contract.
A Partial Win for the SEC
Despite Ripple’s victory, the SEC also won a partial victory as Torres found the company’s $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities. She said a jury must decide whether Garlinghouse and Larsen aided the company’s violation of law, and that the defendants cannot argue at trial that they lacked “fair notice” that XRP was a cryptocurrency.
Calls for Legislation
The ruling has renewed calls for Congress to clarify the status of digital assets. House of Representatives Majority Whip Tom Emmer, a Republican, said the ruling established that “a token is separate and distinct from an investment contract it may or may not be part of.” He added, “Now, let’s make it law.”
This landmark case and its implications for the cryptocurrency industry will continue to be closely watched. As the legal landscape evolves, the industry awaits further clarity on the regulatory status of digital assets.
