Ripple has scored a partial victory in its battle with the US Securities and Exchange Commission with a court ruling that brings some regulatory clarity to the cryptocurrency industry.
Ripple's sale of XRP tokens on exchanges and through algorithms does not constitute an investment contract, the US District Court for the Southern District of New York ruled Thursday. But institutional sales of tokens violate federal securities laws, the court said.
XRP boosts cryptocurrency news and exchanges. Gemini said it may now list the tokens, but initial readings by legal experts indicate the ruling does not address whether or under what circumstances digital assets meet the definition of security under US law.
Under Chairman Gary Gensler, the SEC argued that many of them did, requiring issuers to go through a lengthy and expensive registration process before selling to the public and exchanges to register as broker-dealers before being quoted. The industry argues that it's unclear how laws written in the analog era apply to asset classes born on the Internet.
The court issued its findings in an order that will partially implement a motion for summary judgment in a landmark US SEC case against blockchain platforms. In 2020, regulators filed a lawsuit against the company and its executives, CEO Brad Girlinghouse and co-founder Christian Larsen, alleging that they failed to register XRP as a security before offering a token worth $1.3 billion.
According to a ruling by the US District Court for the Southern District of New York, Ripple is selling approximately $728.9 million worth of XRP directly to institutional buyers, hedge funds and other parties for the first time. These "institutional sales" are offers and sales of unregistered investment contracts that violate federal securities laws, the order said, because they found that investors would buy XRP in hopes of profiting from Ripple's work.
Ripple is using the proceeds from the institutional sale to "promote and increase the value of XRP by developing the use of XRP and providing a trading market for XRP," the order said.
The SEC's motion for summary judgment is granted by the court as it relates to institutional sales and is otherwise denied.
XRP "programmed sales" by exchanges and algorithms do not qualify as securities sales because the SEC cannot conclusively establish that speculative investors "have a reasonable expectation of profit from the entrepreneurial or managerial efforts of others."
"There is no evidence that reasonable software purchasers, generally less sophisticated investors, share similar 'understandings and expectations' and can analyze the various documents and statements highlighted by the SEC as (sometimes inconsistent) statements in multiple media outlets. Social and news. A site by various Ripple spokespersons (with varying degrees of authority) over an extended eight-year period,” the order said.
XRP sales by Larsen and Gerlinghouse, respectively, fall into this category along with other distributions. Ripley's motion for summary judgment in lieu of program sales, other distributions, and Larsen and Girlinghouse sales.
Another SEC motion for summary judgment against the two executives because the court found that "it is unclear whether Larsen and Girlinghouse knew of or recklessly disregarded securities laws rather than laws under other regulatory regimes." , apply." for XRP."
“We said in December 2020 that we are on the right side of the law and we will be on the right side of history. We thank everyone who helped us make today's decision, which will benefit all cryptocurrency innovation in the United States. This is America. Come united," Girlinghouse tweeted following the order.
Update (July 13, 16:44 UTC): Added order details article.
Update (July 13, 15:17 UTC): Clarified what the order calls "other distribution".
Update (July 13, 17:55 UTC): Add context and analysis, clarify court jurisdiction.