In a groundbreaking legal triumph for the cryptocurrency industry, Ripple Labs Inc has been cleared of violating federal securities law by selling its XRP token on public exchanges. The momentous ruling by a U.S. judge on Thursday sent shockwaves through the market, resulting in a remarkable surge in the value of XRP.
Following the decision, XRP experienced a substantial 25% increase, according to data from Refinitiv Eikon. While the ruling represents a significant win for Ripple Labs, the largest crypto company to face a judge’s verdict, it also offers a partial victory for the U.S. Securities and Exchange Commission (SEC), which has pursued numerous cases against crypto developers. The SEC contended that Ripple Labs conducted an unregistered securities offering worth $1.3 billion through the sale of XRP, a cryptocurrency created by Ripple’s founders back in 2012.
Judge Analisa Torres, presiding over the case in New York, ruled that Ripple had indeed violated federal securities law by directly selling XRP to sophisticated investors. However, she also determined that Ripple’s XRP sales on public cryptocurrency exchanges did not qualify as securities offerings, as purchasers did not anticipate profiting from Ripple’s endeavors. Judge Torres referred to these sales as “blind bid/ask transactions,” emphasizing that buyers were unaware of whether their payments went to Ripple or any other XRP seller.
Notably, Judge Torres’s verdict marks the first instance in which a U.S. judge has recognized certain digital asset sales as falling outside the scope of U.S. securities law, adding weight to the ruling’s significance. It is worth mentioning that the decision could be subject to appeal, although neither Ripple’s attorney nor an SEC spokesperson provided immediate comments on the matter.
The court ruling also shed light on the involvement of Ripple CEO Brad Garlinghouse, co-founder and former CEO Chris Larsen, and their potential aid in the company’s violation of the law. While Torres declared that XRP sales on cryptocurrency platforms by Garlinghouse, Larsen, and other distributions, including employee compensation, did not involve securities, she maintained that a jury should determine whether these individuals had contributed to the company’s legal transgressions.
Following the verdict, Garlinghouse expressed his elation in a tweet, thanking all those who contributed to the favorable decision and underscoring its significance for crypto innovation in the United States. Meanwhile, Larsen’s attorney did not provide an immediate comment on the ruling.
Gary DeWaal, an attorney at Katten Muchin Rosenman, opined that the court’s decision could prove advantageous for Coinbase (COIN.O), the largest U.S. crypto exchange, which is currently embroiled in its own legal battle with the SEC. DeWaal suggested that the market’s reaction indicated a “tremendous event for the industry.”
Furthermore, the ruling has reignited calls for Congress to enact legislation that clarifies the status of digital assets. Representative Tom Emmer, the Majority Whip of the House of Representatives and a Republican, took to Twitter to assert that the ruling had established the separateness of tokens from investment contracts. He urged Congress to solidify this distinction by enacting relevant legislation.
This landmark legal victory for Ripple Labs and the subsequent market response underscore the growing significance of the cryptocurrency industry. As the industry continues to evolve, it becomes increasingly vital for regulatory frameworks to provide clarity and address the unique characteristics of digital assets.
