Ripple’s Secondary Sales of XRP Not an Investment Contract: Judge Rules Following Over 3-Year Long Legal Battle

XRP is booming after Judge Analisa Torres’s ruling on Thursday that most sales of the Ripple-issued cryptocurrency do not constitute securities transactions.

The ruling brings a conclusion to a three-year-long lawsuit that is expected to set a firm precedent for many crypto issuers’ legal standing in the United States going forward. Let’s dig into the details of the ruling, and examine how it could impact other cryptocurrencies in the near term.

Institutional Sales VS Other Sales of XRP

In its lawsuit filed in December 2020, the Securities and Exchange Commission (SEC) alleged that virtually all sales of XRP are securities transactions, whether sold directly by Ripple, or on secondary markets.

The summary judgment on Thursday, however, asserted that the SEC was only correct in terms of “institutional sales” of the asset. These included XRP sales to “sophisticated individuals and entities” through which Ripple raised $728 million.

According to Torres, institutional sales satisfied every prong of the Howey Test, meaning there was 1) an investment of money; 2) in a common enterprise; 3) with an expectation of profits; 4) based on the efforts of others.

“The nature of the Institutional Sales also supports the conclusion that Ripple sold XRP as an investment rather than for consumptive use,” the judge wrote.

Beyond institutional sales, programmatic sales – including secondary market sales on exchanges that raised $757 million for Ripple – were not deemed securities transactions because they didn’t satisfy prong three of Howey. XRP buyers on those exchanges couldn’t have known whether their money was going to Ripple or another owner of XRP.

Furthermore, payouts to employees using XRP were not investment contracts because they did not involve an investment of money to begin with.

Finally, Ripple co-founder Brad Garlinghouse and Chris Larsen’s sales of XRP were not securities transactions, since they were made as programmatic sales.

What About Other Cryptos?

XRP itself– irrespective of the circumstances surrounding its sale – was also ruled a non-security. “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,” read the filing.

This stipulation could have major implications for other top crypto assets like Cardano (ADA), Solana (SOL), and Polygon (MATIC), all of which were alleged to be securities by the SEC in a lawsuit against Coinbase last month.

Coinbase delisted XRP in December 2020 following the SEC’s lawsuit, alongside many other exchanges. After the latest ruling, however, crypto exchanges like Gemini are already showing interest in relisting the asset.

Given today's ruling that the sale of XRP on exchanges is not a security, @Gemini is exploring the listing of XRP for both spot and derivatives trading.

— Gemini (@Gemini) July 13, 2023

XRP is now trading 64% up on the day, and its market cap has surpassed Binance’s native token, BNB.

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