SEC Ruling – July 2023
XRP, the native token of the blockchain company Ripple, soared more than 60% on Thursday after a U.S. judge delivered a major victory to the firm in its legal battle with the Securities and Exchange Commission (SEC).
The SEC had sued Ripple in December 2020, alleging that it had raised over $1.3 billion through the sale of XRP in an unregistered securities offering. The SEC claimed that XRP was an investment contract that gave buyers the expectation of profits based on Ripple’s efforts.
However, the Judge ruled that XRP was not a security “on its face” and that some aspects of its sale did not violate the federal securities laws.
The judge drew a distinction between the sales of XRP to institutional investors, which she said could constitute investment contracts, and the sales of XRP to the general public on exchanges, which did not.
Argument
The judge also denied Ripple’s argument that the SEC lacked jurisdiction over XRP transactions because they were not domestic, and agreed with the SEC that the Howey test, a four-pronged criteria to determine whether an asset is a security, applied to cryptocurrency transactions.
The ruling was welcomed by Ripple and its supporters, who argued that XRP was a utility token that facilitated cross-border payments and did not depend on Ripple’s efforts for its value.
Ripple’s chief legal officer, reportedly tweeted: “A huge win today – as a matter of law – XRP is not a security. Also, a matter of law – sales on exchanges are not securities. Sales by executives are not securities. Other XRP distributions – to developers, charities, and employees- are not securities.”
A lawyer representing over 19,000 XRP holders who intervened in the case, reportedly called on U.S. exchanges to relist XRP in solidarity with the decision.
Crypyo boost
The ruling also boosted the sentiment in the broader crypto market, as it suggested that the SEC did not have unlimited authority over digital assets and that some tokens could escape the securities classification.
Crypto-related stocks such as Coinbase and crypto-coins such as ADA, HBAR, BITCOIN & ETH surged following the news.
More to come?
However, the case is not quite over yet, as the SEC said it would continue to review the decision and pursue its claims against Ripple for the sales of XRP to institutional investors.
The SEC also responded to the judge’s ruling by saying that it did not change its position that XRP was a security and that it would seek to prove that Ripple violated the securities laws in certain circumstances.
The outcome of the case could have significant implications for the crypto industry, as it could set a precedent for how other tokens are regulated and how other lawsuits are resolved.