By Adedapo Adesanya
A federal judge in the United States has partially sided with Ripple Labs in a US Securities and Exchange Commission (SEC) lawsuit alleging the San Francisco-based blockchain developer issued an unregistered security offering with its XRP token.
As a result of this news, XRP jumped 28.00 per cent in the cryptocurrency market to $0.6071, as observed by Business Post.
The Judge, Annalisa Torres, found that Ripple’s institutional sales of XRP constituted an unregistered securities offering but settled that programmatic sales on the secondary market were not.
In the decision, the court noted that “having considered the economic reality of the Programmatic Sales, the Court concludes that the undisputed record does not establish the third Howey prong.”
“Since 2017, Ripple’s Programmatic Sales represented less than 1% of the global XRP trading volume. Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money.
“Therefore, having considered the economic reality and totality of circumstances, the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts,” the judge held.
The summary judgment comes after a three-year-long legal battle and could set a precedent for future token classification cases.
The judge granted part of the SEC’s motion pertaining to $728 million in institutional sales. At the time of the SEC’s lawsuit in December 2020, the regulator calculated Ripple’s XRP sales in total to $1.4 billion.
The court said, “reasonable investors…in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts.
“XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract, the court ruled.
“Rather, the Court examines the totality of circumstances surrounding Defendants’ different transactions and schemes involving the sale and distribution of XRP,” the filing added.
Ripple Lab and the SEC have been slugging it out since 2020.
