Ripple Labs wins key ruling as judge declares XRP is not a security in SEC’s case

News | July 17, 2023 By:

Ripple Labs, the company behind the XRP cryptocurrency, has won a major legal battle against the Securities and Exchange Commission (SEC), as a judge ruled that XRP is not a security and does not fall under the SEC’s jurisdiction.

The SEC sued Ripple Labs and its executives in December 2020, alleging that they raised over $1.3 billion through an unregistered and ongoing digital asset securities offering. The SEC claimed that XRP was a security and that Ripple Labs violated federal securities laws by selling it to retail investors without proper disclosures.

Ripple Labs argued that XRP was not a security, but a medium of exchange that did not require registration as an investment contract. The company also challenged the SEC’s authority and timing of the lawsuit, saying that the agency failed to provide fair notice of its regulatory stance on XRP.

U.S. District Judge Analisa Torres in New York granted Ripple Labs’ motion for summary judgment on July 13, finding that XRP was not a security and that the SEC had no basis to regulate it. The judge said that XRP had a clear utility as a cross-border payment system and that it was not dependent on Ripple Labs’ efforts or promises for its value.

The judge also dismissed the SEC’s claims against Ripple Labs’ executives, saying that they did not knowingly or recklessly sell XRP as an unregistered security. The judge said that the SEC did not prove that the executives had any intent to defraud or mislead investors.

However, the SEC scored a minor win as Torres determined that Ripple Labs’ $728.9 million of XRP sales to hedge funds and other savvy investors constituted unregistered sales of securities.

Torres decided that Ripple Labs’ marketing targeted at institutional investors revealed that the company “was offering a risky value proposition for XRP” that relied on the company’s efforts to build the blockchain infrastructure behind the digital asset.

She said that a jury must determine whether the executives helped the company break the law, and that they cannot claim at trial that they were not aware that XRP was a security.

“The law does not oblige the SEC to alert all possible violators on an individual or industry level,” she said.

The ruling is a significant victory for Ripple Labs and the XRP community, as it clears the legal uncertainty surrounding the cryptocurrency and paves the way for its wider adoption and innovation. XRP’s price surged by over 20% after the news, reaching its highest level since May 2021.