Ripple Labs Inc. scored a major legal victory for the crypto industry Thursday, with a U.S. judge ruling XRP sold on exchanges was not a security.
U.S. District Judge Analisa Torres ruled Ripple did violate federal securities laws when selling directly to institutional investors, such as venture capitalists and hedge funds. She said a jury must decide if Ripple executives broke the law and also said they can’t argue a lack of “fair notice” that XRP was a cryptocurrency.
Cosmos Ecosystem participants reacted to the news favorably, as many took to social media, declaring it a win for “all of crypto” and saying the SEC is not invulnerable in the court room. Others were quick to say the SEC could appeal the decision and acknowledged a partial victory for the regulator.
XRP is first token to be legally defined as not a security by the US judiciary system.
What ever your opinion on $XRP may be, it’s now cemented in crypto history.
— Greg Osuri ⟁ (@gregosuri) July 14, 2023
The SEC’s lawsuit stated Ripple and its chief executives offered $1.3 billion in unregistered security sales since 2012.
The cryptocurrency industry has largely disputed the SEC’s assertion that most tokens are securities and investors require their protection.
Judge Torres’ ruling that XRP sold on exchanges was not a security is based on if buyers had a reasonable expectation of profits because of Ripple’s efforts, which they did not, she said. Those sales were “blind bid/ask transactions,” she said, in which buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.”
Torres cited 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 an investment contract security.
Ripple execs Brad Garlinghouse and Chris Larsen did not sell securities according to Torres, as the duo sold personal XRP holdings on various exchanges, in some cases to pay employees.
Coinbase said it would allow trading of XRP to resume on its platform based on the ruling.
“We’ve read Judge Torres’ thoughtful decision. We’ve carefully reviewed our analysis. It’s time to relist,” Coinbase chief legal officer Paul Grewal said on Twitter.
The ruling may assist Coinbase in their current case versus the SEC as it deals with the offering of unregistered securities.
U.S. House of Representatives Tom Emmer, a Republican, said in a Twitter post “a token is separate and distinct from an investment contract it may or may not be part of. Now, let’s make it law.”
