Ripple Labs Celebrates Landmark Victory over XRP

In a groundbreaking legal triumph for the cryptocurrency industry, Ripple Labs Inc has been absolved of violating federal securities law by selling its XRP token on public exchanges. This landmark ruling by U.S. District Judge Analisa Torres not only marked the first victory for a cryptocurrency company in a case initiated by the U.S. Securities and Exchange Commission (SEC) but also caused a surge in the value of XRP.

XRP Surges 75% following the Ruling

According to Refinitiv Eikon data, XRP witnessed a staggering 75% increase in value by late afternoon on Thursday, showcasing the market’s positive response to the verdict. This ruling by Judge Torres, although specific to the case at hand, is expected to embolden other cryptocurrency firms engaged in legal battles with the SEC to challenge the regulator’s jurisdiction.

Mixed Ruling Grants Partial Victory to the SEC

While Ripple’s legal victory is noteworthy, the SEC did secure a partial win as the judge ruled that the company had indeed violated federal securities law by directly selling XRP to sophisticated investors. It is important to note that the ruling can be appealed either after a final judgment is issued or if permitted by the judge before then. The SEC is currently reviewing the decision to determine its next course of action.

Ripple and the Industry Celebrate the Ruling

Ripple’s Chief Executive, Brad Garlinghouse, hailed the ruling as “a huge win for Ripple but more importantly for the industry overall in the U.S.” This decision has prompted Coinbase, the largest cryptocurrency exchange in the United States, to announce the resumption of XRP trading on its platform. Coinbase’s stock experienced a 24% surge, closing at $107 per share on Thursday.

When Crypto is Not a Security

The SEC’s accusations against Ripple Labs and its executives revolved around an alleged $1.3 billion unregistered securities offering through the sale of XRP, which was created by Ripple’s founders back in 2012. The outcome of this case has been closely monitored by the cryptocurrency industry, which challenges the SEC’s assertion that the majority of crypto tokens qualify as securities, subjecting them to stringent investor protection regulations. Although the SEC has initiated over 100 enforcement actions related to cryptocurrencies, most have concluded in settlements.

Judge Torres’ Ruling

Judge Torres ruled that Ripple’s sale of XRP on public cryptocurrency exchanges did not constitute offers of securities. She argued that purchasers did not have a reasonable expectation of profit directly linked to Ripple’s efforts. Referring to the sales as “blind bid/ask transactions,” she explained that buyers were unaware of whether their payments went to Ripple or other sellers of XRP. The judge applied a U.S. Supreme Court case that classified an investment of money as a security called an investment contract, stipulating that it should involve “profits to come solely from the efforts of others.”

Partial Victory for the SEC

Despite Ripple’s success in dismissing the majority of the SEC’s allegations, the SEC did secure a partial victory. Judge Torres ruled that Ripple’s sales of $728.9 million worth of XRP to hedge funds and other sophisticated buyers constituted unregistered sales of securities. She determined that Ripple’s marketing efforts targeted institutional investors and presented a speculative value proposition for XRP, dependent on the company’s efforts to develop the underlying blockchain infrastructure. The jury will ultimately decide whether Garlinghouse and Larsen aided the company’s violation of the law, and the defendants will not be able to argue at trial that they were unaware that XRP was a cryptocurrency.

Calls for Legislation

Following this significant ruling, legal experts anticipate that Coinbase will leverage this outcome in its own battle against the SEC. The market’s response to the ruling indicates that it is a “tremendous event for the industry,” according to Gary DeWaal, an attorney at Katten Muchin Rosenman. This ruling once again highlights the pressing need for clear regulatory guidelines for digital assets. Industry advocates are calling on Congress to enact legislation that establishes distinct rules for tokens and provides unequivocal clarity regarding their classification. House of Representatives Majority Whip, Tom Emmer, took to Twitter to express his support for legislation that recognizes the distinction between tokens and investment contracts, emphasizing the urgency of formalizing these regulations into law.

Ripple – XPR: Conclusion

Ripple Labs’ legal victory in the SEC case concerning XRP sales has set an important precedent for the cryptocurrency industry. While the ruling provides Ripple with a significant advantage, it also presents an opportunity for other crypto firms engaged in legal battles with the SEC to challenge the regulator’s jurisdiction. The outcome of this case further highlights the need for comprehensive legislation that offers clear rules and classifications for digital assets, ensuring transparency and investor protection.