Partial victory: Details and implications of the SEC’s Ripple case

The Southern District of New York ruled in Ripple's favor in the SEC case.

The Southern District Court of New York delivered a ruling in favor of the California blockchain company Ripple Labs in the case against the SEC. Judge Analisa Torres found that sales and other distributions of XRP did not constitute an offer or sale of investment contracts.

The regulator filed suit against the firm in 2020, accusing it of distributing unregistered securities in the form of the platform’s native tokens.

However Ripple’s victory was incomplete — according to the ruling, purchases of coins totaling more than $700 million by large players nevertheless violated U.S. law. Torres granted the SEC’s motion for summary judgment on this issue.

Now the company’s chief Brad Garlinghouse and chief executive Chris Larsen face a jury trial. It will decide whether the top executives bear responsibility for the unlawful sale of tokens to institutions.

The distribution of XRP through exchanges and algorithms did not qualify as securities transactions, as the SEC could not unambiguously determine that investors reasonably expected to profit from the entrepreneurial or managerial efforts of others.

The judge noted that the so-called “programmatic sales” account for less than 1% of the token’s global transactions since 2017.

“The vast majority of people who bought XRP on digital asset exchanges did not invest money in Ripple at all,” Torres ruled.

However, selling to major players meant they could have expected to profit from investing in the venture, and in that case XRP falls under the definition of securities.

SEC representatives said the agency “will continue to review the decision,” hinting at a possible appeal.

“We are pleased with the court’s ruling that XRP tokens were offered and sold by Ripple as investment contracts in violation of securities laws under certain circumstances,” the SEC said.

Coinbase co-founder Tyler Winklevoss noted that the court’s decision “destroys” the SEC’s cases against Coinbase and Binance. His brother Cameron called the situation a “watershed moment” that would make it hard for the regulator to claim authority over cryptocurrencies.

Despite the favorable outcome for XRP, several lawyers cautioned against premature victory celebrations. Stephen Palley, a partner at Brown Rudnick, said the ruling is only a “partial” win and does not create a legal precedent.

Meanwhile, attorney Joe Carlasare criticized Garlinghouse for “undue profits of $700 million.”

Following the verdict, XRP’s price jumped 97%—from $0.47 to $0.93. At the time of writing, the asset was trading around $0.77.

According to CoinGecko, the token rose to fourth by market cap, at $40.5 billion. In the last 24 hours, the metric climbed 66%.

Many assets in the top 10 also ended up green after the ruling. For instance, Bitcoin and Ethereum rose above $31,000 and $2,000 respectively.

Major crypto exchanges announced plans to resume XRP trading for US-based users. XRP pairs will appear on Coinbase, Gemini, Binance, Kraken, Crypto.com, Bitstamp and others.

Earlier in the Ripple v. SEC case, the court unsealed documents related to 2018 testimony by former regulator William Hinman.

In his remarks, the former director of the agency’s corporate finance division stated that Bitcoin and Ethereum are not securities. Ripple’s management welcomed his remarks, saying it strengthened their resolve to win the case.