Ripple Ruling Threatens SEC’s Crypto Regulatory Push

In a ruling that could undercut efforts to regulate cryptocurrencies, a federal judge said Thursday that crypto firm Ripple Labs’ token is not protected when it is sold to retail investors.

The Securities Exchange Commission is pushing for the classification of 12 popular cryptocurrencies as securities, including Ripple’s XRP. That would subject them to SEC oversight and place US crypto exchanges in the category of unregistered securities brokers.

But U.S. District Judge Analisa Torres drew a distinction between sales to institutional investors and sales to retailers.

While XRP is not a security when individuals buy the token, it is a security when investment funds and other financial institutions do so, Torres ruled. To determine whether a transaction qualifies as an “investment contract,” the judge relied on a legal standard known as the Howie test, which makes the object of the sale a security.

His decision boils down to institutional investors having more knowledge about XRP’s pricing than retail investors.

“A reasonable investor in the position of an institutional buyer would be aware of Ripple’s marketing campaign and public statements linking the price of XRP to its own efforts,” Torres wrote.

On the other hand, individual investors are “generally less sophisticated” and shouldn’t be expected to have “similar ‘understandings and expectations'” about Ripple and XRP, Torres wrote.

Crypto investors took the ruling as good news. The price of XRP rose more than 65 percent after the announcement.

“In general, the ruling is a bit better than the crypto industry expected or expected,” said Jason Gottlieb, head of regulatory enforcement and digital assets at Morrison Cohen.

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Gottlieb said that exchanges like Coinbase were the winners in the ruling and that Ripple may have “lost the idea” that its initial offerings were not securities, which is favorable to the company. Not a big part of its token sale.

“That’s a big win for Ripple,” Gottlieb said.

SEC Goes After Crypto, Binance Seeks Asset Freeze While Suing Coinbase

The SEC initially charged Ripple and two of its executives Two years ago Issuance of unregistered securities by selling XRP tokens. Torres’ ruling on Thursday cited SEC allegations that the company sold $728 million worth of tokens to institutional investors, $758 million to the general public and $609 million to its own employees and individuals in exchange for services.

The SEC also alleges that Ripple executives Bradley Carlinghouse and Christian Larson made $450 million from selling their own shares in XRP from 2013-2020.

Ripple’s CEO Carlinghouse praised Thursday’s ruling. “Thank you to everyone who helped us make today’s decision for all crypto innovation in America,” he said. He tweeted that.

The SEC’s statement praised the portion of Torres’ ruling that applies to corporate sales of XRP.

“We are pleased that the court found that XRP tokens were issued and sold by Ripple as investment contracts in violation of securities laws under certain circumstances,” said SEC spokesman Scott Schneider.

After Thursday’s ruling, crypto exchange Coinbase Restarted Trading of XRP. Coinbase was sued by the SEC last month, which accused the company of operating as an unregistered securities exchange, broker and clearing house since 2019.

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