After Judge Torres handed down her verdict in the SEC vs Ripple lawsuit last Thursday, a lot has been said about what the ruling actually means. The reactions have been very mixed, perhaps rightfully so, reflecting the case’s complexity and importance.
Not surprisingly, the Securities and Exchange Commission (SEC) tried to put a positive spin on the outcome by claiming victory. The SEC stated it was “pleased that the court has found that XRP tokens were offered and sold by Ripple as investment contracts in certain circumstances, in violation of securities laws.”
However, rather than a win for the SEC or Ripple, the decision was a split one, with each of the parties having a win. In a nutshell, the judge delivered a divided verdict, partially ruling on both parties’ motions for summary judgment, which had asked the court to decide without consulting a jury of peers.
Some crypto community members have questioned the judgment, with former SEC lawyer John Reed Stark voicing his concerns about the ruling and advising against hasty celebrations among the cryptocurrency community. He claimed that the court had turned investor protection on its head.
However, Coinbase Chief Legal Officer Paul Grewal commented, “Don’t be misled that Judge Torres ruled that sometimes XRP is a security and sometimes it isn’t. That’s exactly the opposite of what she ruled: XRP itself is NEVER a security.”
Judge Torres found that “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.”
According to the judge, XRP programmatic sales are not unregistered securities offerings. The judge made it clear that because it was unrelated to the case, the decision did not examine whether XRP’s secondary market sales constituted offers and sales of investment contracts. Rather, the judge ruled that institutional XRP sales were unlawful because they were unregistered securities transactions.
When buying XRP from Ripple, institutions received investment papers and signed contracts on paper. Despite being required by law, Ripple never reported the sales. Consequently, the court ruled against Ripple here.
However, programmatic sales and other XRP distribution methods were recognized as legitimate. The judge ruled that no one had paid money to obtain these distributions; thus, there were no unregistered investment contracts. Programmatic sales involved anonymous bid/ask exchanges carried out by algorithms, with buyers being unaware of the identity of the sellers.
This is probably seen as the biggest win for XRP retail investors and the 75000 holders represented by lawyer John E. Deaton as Amicus or friends to the court.
Judge Torres referred to the Amicus and their Affidavits in her ruling, citing that it was impossible to know why people had bought XRP on exchanges, which means the decision could have been easily very different if not for the 75000 Amicus’.
In the end, while individual defendants wait for their trials to determine whether the two Ripple executives aided and abetted Ripple concerning Institutional sales, the question is: Will Judge Torres’ summary ruling be appealed? Either party may appeal the decision; however, such a request is known as an interlocutory appeal, and only very seldom are they granted, according to a lawyer and a close observer of the case, Jeremy Hogan.
The likelihood of appeals occurring after the trial is higher, according to Hogan, and as appeals naturally take a long time to resolve, the judgment will likely stand through and into 2025, which is a considerable amount of time and may give the US Congress time to carve out more transparent regulations.