Title: U.S. Judge Rules Ripple Labs Did Not Violate Securities Law with XRP Sales, Suggests Legislation Needed
Date: July 13, 2022
Reuters – In a groundbreaking ruling, a U.S. judge declared that Ripple Labs Inc. did not violate federal securities laws by selling its XRP token on public exchanges. The decision marks a significant legal victory for the cryptocurrency industry, causing the value of XRP to surge by 25% after the ruling, according to Refinitiv Eikon data.
While the ruling was a clear win for Ripple Labs, it also represented a partial victory for the U.S. Securities and Exchange Commission (SEC), which has pursued numerous cases against crypto developers. This case against Ripple Labs, however, is by far the largest to be decided by a judge. The judge, U.S. District Judge Analisa Torres, ruled that Ripple Labs violated federal securities laws by selling XRP directly to sophisticated investors, but the sales on public cryptocurrency exchanges were deemed not to be securities under the law.
Notably, this is the first time a U.S. judge has ruled in favor of a cryptocurrency company, considering certain digital asset sales as falling outside the scope of U.S. securities laws. However, the ruling can still be appealed. As of yet, there has been no immediate response or comment from an attorney representing Ripple or a spokesperson for the SEC.
The SEC had accused Ripple and its current and former chief executives of conducting an unregistered securities offering worth $1.3 billion through the sale of XRP, which was created by Ripple’s founders in 2012. Judge Torres affirmed that Ripple’s sales of $728.9 million to hedge funds and other sophisticated buyers constituted unregistered sales of securities. However, sales made on public exchanges were classified as “blind bid/ask transactions” since buyers were unaware if their payments were going directly to Ripple or any other XRP seller.
Furthermore, Torres ruled that XRP sales made by Ripple CEO Brad Garlinghouse, co-founder and former CEO Chris Larsen, and other distributions, including employee compensation, did not involve securities. However, the judge stated that a jury would need to decide whether or not Garlinghouse and Larsen aided the company’s violation of the law.
Garlinghouse expressed his gratitude for the decision in a post on Twitter, stating, “Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US.” Meanwhile, an attorney for Larsen did not immediately provide a comment.
The ruling is expected to have implications for Coinbase, the largest U.S. cryptocurrency exchange, which is currently battling its own case with the SEC. Attorney Gary DeWaal at Katten Muchin Rosenman highlighted that the market reaction to the ruling demonstrates its significance for the industry as a whole.
The ruling has also reignited calls for Congress to pass legislation that clarifies the status of digital assets. Republican House of Representatives Majority Whip Tom Emmer suggested in a tweet that a token should be considered “separate and distinct from an investment contract it may or may not be part of.” Emmer asserts that it is now time to make such a distinction legally binding.
The impact of this landmark decision and its potential consequences will likely continue to shape the future of the cryptocurrency industry.
Reporting by Tom Hals in Wilmington, Delaware; Edited by Chizu Nomiyama, Conor Humphries, and Leslie Adler