XRP Sold on Exchange Declared Not an Investment Contract
Ripple Labs achieves a legal win in a lawsuit against the SEC, leading to a pronounced surge in the value of the XRP token.
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Ripple Labs Inc., the blockchain-based payment protocol company, has won a significant legal battle against the U.S. Securities and Exchange Commission (SEC). In a case that has been closely monitored by the financial world since 2020, Judge Analisa Torres of the United States District Court, Southern District of New York, ruled on July 13 that the XRP token is not a security when put on exchanges:
“Defendants’ [Ripple] motion is GRANTED in part.”
While Ripple’s sale of XRP tokens to institutional investors directly infringed upon federal securities laws, the court ruled in favor of the company regarding its sales of XRP tokens on exchanges and through algorithmic procedures, which were deemed not to constitute investment contracts.
We said in Dec 2020 that we were on the right side of the law, and will be on the right side of history. Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come.
— Brad Garlinghouse (@bgarlinghouse) July 13, 2023
XRP sales by Larsen and Garlinghouse were categorized as non-securities transactions by the courts. Other distributions of XRP, such as for employee compensation or Ripple’s Xpring initiative to develop new XRP applications, were similarly exempted from securities classification.
The court denied the SEC’s claim that Larsen and Garlinghouse knowingly or recklessly disregarded securities laws, while noting the lack of clarity over whether the executives fully understood these laws’ applicability to XRP.
Coinciding with the announcement of the ruling, the XRP token experienced a sudden surge in value. Rising from $0.45 to $0.61 within minutes, the token’s value increased by over 25%, according to CoinGecko.
The SEC’s lawsuit against Ripple and its executives was filed in December 2020, arguing that Ripple was offering an unregistered security, a claim that Ripple has consistently disputed.
During the trial, however, both Ripple executives testified against calling XRP and its consecutive sales a security, saying that in Switzerland, Singapore, Japan and the UAE, XRP is not a security.
The executives further argue that the release of the Bill Hinman speech was another crucial factor in putting XRP as out of the definition of a security:
“Larsen further testified that he understood the 2018 speech by the then-Director of the SEC Division of Corporate Finance, Bill Hinman—in which he stated that neither bitcoin nor ether (another digital asset) were securities—to further reinforce the SEC’s position that XRP was not a security.”
Ripple’s CEO, Brad Garlinghouse, has maintained a defiant stance throughout the proceedings, tweeting:
“(and let’s start planning that proper party!)”
Editor’s note: Article has been updated to add more clarity to the case, especially how XRP on exchanges cannot be put into institutional contracts.