In United States law, a security is defined as “an investment of money in a common enterprise with benefits derived solely from the efforts of others.” Many industry players argue that most cryptocurrencies do not fit the legal definition of securities in the United States and have called for new regulations or laws.
The case between Ripple Labs and the United States Securities and Exchange Commission (SEC) has taken a significant turn. Judge Analisa Torres has ruled that some sales of Ripple’s XRP token are not subject to securities laws.
Said ruling is a major victory for Ripple in its legal battle against the SEC, which had sued the company for making an unregistered offering of $1.3 billion in XRP between 2013 and 2020.
Although the decision did not cover secondary sales of XRP, it has built confidence among cryptocurrency exchanges to once again offer the Ripple token to their users.
Marco Santori, Kraken’s legal director, said on Twitter that they see the court ruling as a first step toward greater legal clarity in the United States. He added that this clarity allows them to plan, contract and invest in the country where they were founded.
The partial victory of Ripple Labs against the United States regulatory body can be considered as a very significant blow against the “war” that the SEC is waging in favor of traditionalism and to the detriment of the cryptocurrency market. However, lawyers who know the industry say that it has not been a definitive triumph.
Victory for Ripple and the Market
Ripple, as expected for some months now, had everything to win in this trial brought up by the most conservative faction of the US government. However, it took more than two and a half years for the judge to say that XRP is not a security.
This court decision ends the dispute that began in December 2020, when US regulators filed lawsuits against Ripple Labs and its CEOs, Brad Garlinghouse and Chris Larsen, alleging that the technology company had raised more than $1 billion. through offering unregistered securities, making direct reference to the sale of its native token, XRP.
According to Judge Torres, the sale of the XRP token by Ripple on exchange platforms and through algorithms does not correspond to investment contracts, although the institutional sale of this digital asset would have violated the securities laws of the North American giant.
The SEC’s lawsuit sought to force Ripple to stop offering and selling its native token, based on the premise that this was a security, an issue in which it has just failed.
XRP Sales Are Not Securities Offerings
According to Judge Torres’ ruling, Ripple’s sales on public exchanges to retail investors are not securities offerings because the buyers had no reasonable expectation of profit tied to Ripple’s efforts. However, it also ruled that Ripple violated securities laws when it sold XRP directly to sophisticated investors like hedge funds.
Bitcoin is not considered a security because investor returns do not depend on the efforts of developers or managers. Some Blockchain projects have attempted to finance their operations by first offering securities under SEC regulations and then providing or selling cryptocurrency after building a working Blockchain.
However, it is still unclear what would be required to convert a security to a non-security, as the SEC has not provided clarification on this matter, Reuters reports.
By Audy Castaneda
