In a significant legal victory for the cryptocurrency industry, a U.S. judge ruled on Thursday that Ripple Labs Inc did not violate federal securities law when it sold its XRP token on public exchanges. This ruling caused the value of XRP to surge, with a 25% increase reported according to Refinitiv Eikon data.
While this ruling was a win for Ripple Labs, it also had some positive implications for the U.S. Securities and Exchange Commission (SEC). The SEC has pursued numerous cases against crypto developers, and Ripple Labs is by far the largest case to be decided by a judge. The U.S. District Judge Analisa Torres stated that Ripple did violate federal securities law by selling XRP directly to sophisticated investors.
This marked the first time a U.S. judge ruled in favor of a cryptocurrency company, recognizing certain digital asset sales as falling outside the scope of U.S. securities law. However, it is important to note that the ruling can still be appealed. As of now, there has been no immediate response from Ripple's attorney or the SEC spokesperson regarding the ruling.
The SEC had accused Ripple and its current and former chief executives of conducting an unregistered securities offering worth $1.3 billion through the sale of XRP, which was created by Ripple's founders in 2012.
Judge Torres, based in New York, concluded that Ripple's sales of $728.9 million in XRP to hedge funds and sophisticated buyers were unregistered securities sales. However, she ruled that the sales of XRP on public cryptocurrency exchanges did not qualify as securities offerings under the law. According to Torres, purchasers in these transactions did not have a reasonable expectation of profit tied to Ripple's efforts. She described these sales as "blind bid/ask transactions" where buyers couldn't determine if their payments went directly to Ripple or other XRP sellers.
The ruling also determined that XRP sales made by Ripple's CEO Brad Garlinghouse, co-founder and former CEO Chris Larsen, and other distributions including employee compensation did not involve securities.
However, the judge stated that a jury should decide whether Garlinghouse and Larsen aided the company's violation of the law.
In response to the ruling, Garlinghouse expressed his gratitude on Twitter and thanked everyone who contributed to the favorable decision for crypto innovation in the United States. There has been no immediate comment from Larsen's attorney.
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