Ripple is not a security, judge rules

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Ripple is not a security, judge rules

In a ruling that could undercut efforts to regulate cryptocurrencies, a federal judge said Thursday that the token of Ripple Labs, a cryptocurrency firm, is not a security when sold to retail investors. The SEC has been pushing for the classification of 12 well-known cryptocurrencies as securities, including Ripple's XRP. That would make them subject to SEC oversight and may put U.S. crypto exchanges in the category of unregistered securities brokers.

Although 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. The judge leaned on a legal standard called The Howey Test to determine whether a transaction qualifies as an investment contract, which would make the object of the sale a security.

's marketing campaign and public statements connecting XRP's price to its own efforts, Torres wrote.

On the other hand, individual investors are generally less sophisticated and should not be expected to have similar 'understandings and expectations' of Ripple and XRP, Torres wrote.

Investors took the ruling as a good news. The price of XRP surged more than 65 percent following the announcement.

Gottlieb added that exchanges like Coinbase are winners in the ruling, and that while Ripple may have 'lost' the notion that its initial offerings to institutions were not securities, it's a positive for the company that a large portion of its token sales were not.

The SEC first charged Ripple and two of its executives with conducting an unregistered securities offering by selling XRP tokens. Torres's decision Thursday cites SEC allegations that the company sold tokens worth $728 million 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 Garlinghouse and Christian Larsen made $450 million on sales of their own personal shares in XRP from 2013-2020.

Garlinghouse, Ripple's CEO, lauded Thursday's ruling. s decision - one that is for all crypto innovation in the US, he said.