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Ripple Labs notches landmark win in SEC case over XRP cryptocurrency

13 July (Reuters) A U.S. judge ruled on Thursday that Ripple Labs Inc. did not break federal securities law by selling its XRP coin on open exchanges. This was a significant legal victory for the cryptocurrency sector and caused XRP's value to skyrocket.

Refinitiv Eikon figures show that by late Thursday afternoon, XRP had increased by 75%.

Although the SEC also received a partial success as a result of the decision by U.S. District Judge Analisa Torres, it was the first victory for a cryptocurrency corporation in a case brought by the U.S. Securities and Exchange Commission.

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Although the ruling is particular to the specifics of the case, it will probably give other crypto companies fighting the SEC evidence as to whether their products are covered by the regulator's authority.

An SEC representative stated that the agency was satisfied with the judge's conclusion that Ripple had broken the law by selling XRP directly to knowledgeable investors.

Once a final judgment is rendered, or earlier if the court permits it, the decision may be appealed.

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A spokeswoman for the SEC stated that the regulator was considering the choice.

The decision, according to Ripple Chief Executive Brad Garlinghouse, is "a huge win for Ripple but more importantly for the industry overall in the U.S."

The biggest U.S. cryptocurrency exchange, Coinbase (COIN.O), said that it would once more permit XRP trading on its platform.

"We have reviewed Judge Torres' well considered ruling. We've gone over our analysis in great detail. Paul Grewal, the chief legal officer at Coinbase, tweeted that it was time to relist.

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On Thursday, the price of Coinbase stock rose 24% to $107 per share.

The company and its current and past chief executives were charged by the SEC with executing an unregistered $1.3 billion securities offering by selling XRP, which Ripple's creators invented in 2012.

The cryptocurrency sector, which contests the SEC's claim that the great majority of crypto tokens are securities and are therefore subject to its severe investor protection regulations, has been closely following the issue. The regulator has filed more than 100 enforcement actions against cryptocurrency companies, alleging that different tokens constitute securities, but many of those cases have been settled.

In the few cases that have gone to trial, judges have agreed with the SEC that the disputed crypto assets were securities. Securities, as opposed to assets like commodities, are subject to strict regulation, must be registered by their issuer with the SEC, and demand extensive disclosures to alert investors to potential risks.

Torres determined that since buyers did not have a reasonable expectation of profit linked to Ripple's efforts, the company's XRP sales on open cryptocurrency exchanges did not, in the eyes of the law, constitute offers of securities.

She referred to those transactions as "blind bid/ask transactions," in which the purchasers "could not have known if their payments of money went to Ripple, or any other seller of XRP."

Torres utilized a ruling from the U.S. Supreme Court that stated "an investment of money in a common enterprise with profits to come solely from the efforts of others," is a type of security called an investment contract.

According to Torres, Garlinghouse and co-founder and former CEO Chris Larsen's sales of XRP on cryptocurrency exchanges and other disbursements, such as employee compensation, did not constitute securities.

The $728.9 million in XRP sales by the business to hedge funds and other affluent clients that Torres determined to be unregistered transactions of securities gave the SEC a partial success.

According to Torres, Ripple's institutional investor-focused marketing made it obvious the company "was pitching a speculative value proposition for XRP" that depended on company efforts to build the blockchain infrastructure supporting the digital asset.

She argued that a jury must determine if Garlinghouse and Larsen helped the corporation break the law and that the defendants cannot claim they had no "fair notice" that XRP was a cryptocurrency at the time of the alleged offense.

"The law does not require the SEC to warn all potential violators on an individual or industry level," the spokesperson stated.

According to Gary DeWaal of Katten Muchin Rosenman, the decision should aid Coinbase in defending its own SEC case.

According to the market response, the decision represents a "tremendous event for the industry," he claimed.

Both the Ripple and Coinbase cases center on the need for registration as well as whether certain digital assets qualify as securities under American law.

Since the verdict, the crypto sector has pushed for legislation to define the legal status of digital assets and put forth clear regulations for tokens.

Republican House Majority Whip Tom Emmer stated on Twitter that the decision proved "a token is separate and distinct from an investment contract it may or may not be part of."

Let's pass it into law now, he said.

Reporting was done by Tom Hals in Wilmington, Delaware, and Jody Godoy and Chris Prentice in New York; editing was done by Chizu Nomiyama, Conor Humphries, Leslie Adler, and David Gregorio.
The Thomson Reuters Trust Principles serve as our benchmarks.


Daniel Jack

For Daniel, journalism is a way of life. He lives and breathes art and anything even remotely related to it. Politics, Cinema, books, music, fashion are a part of his lifestyle.