What Ripple’s Partial XRP Gain Means for Other Crypto Firms Fighting the SEC

What Ripple’s Partial XRP Gain Means for Other Crypto Firms Fighting the SEC

A US court⁣ ruling‍ that falls​ partially in Ripple’s​ favor could ​bode ‌well for other ‍cryptocurrency⁣ firms dealing with ⁣a Securities⁢ and‍ Exchange Commission⁣ lawsuit ‌– provided​ the decision survives a possible appeal.

⁢This year,⁤ the‌ SEC has cracked down ⁣on ⁢exchange 𝅺platforms‍ like Coinbase (COIN), Binance, and‍ Bittrex for allegedly​ operating ‍unregistered trading ‍platforms𝅺 that list the agency’s 𝅺unregistered securities, including‌ Cardano (ADA), Solana (SOL). Polygon (MATIC) and Filecoin⁢ (FIL). ⁤After the U.S.⁢ District Court for the Southern⁢ District𝅺 of New York ruled ⁢Thursday that certain sales ⁤and 𝅺distributions of‍ XRP tokens by Ripple and‌ its‍ executives ​did not constitute 𝅺investment contracts, these other defendants may have‌ a ​new arrow in⁢ their quiver.

“This is a significant opinion that has the potential to change⁣ the landscape of ‌the SEC’s 𝅺enforcement efforts, or the success of ⁣those ⁣efforts,” ‌said 𝅺Teresa⁣ Goody Guillén, a former attorney in the SEC’s Office of⁤ General Counsel⁢ and ‌now a partner ⁤with the SEC⁤ BakerHostetler Law Firm. “This ​also provides‍ a helpful precedent for Coinbase and ⁣Binance ​to defend ‌themselves against allegations ‌that they‌ are operating⁢ as unregistered securities exchanges, brokers⁣ and clearinghouses.”

Several​ legal experts quickly ducked‌ the furore, arguing that the ​summary ⁢judgment might be ⁣on shaky ground and might not result ‌in‍ the ⁣hoped-for change in‍ the way𝅺 the crypto industry is⁣ treated by the SEC.

“The‌ SEC ​will be‌ watching ⁣for those parts of the𝅺 court decision that are‌ in its favor to reflect its ongoing​ views on the regulatory ⁢status of coins ​and tokens – ‌meaning that they are all ‌securities -‍ and its continued approach ⁣to enforcing those views about the industry,” wrote Joe ‌Castelluccio,‌ head 𝅺of the ⁢fintech ‌and digital assets, blockchain‌ and crypto groups at ⁤law ⁤firm Mayer Brown, ‍in an email.

According to​ Castelluccio, ‍the‍ parts of 𝅺the ⁤decision that go in‌ favor ⁤of‌ Ripple𝅺 are “quite fact-specific, and while there may 𝅺be some in⁣ the ⁣market who ​are ⁢similarly positioned, ‍it ⁣can ​be difficult ‍for others‍ in‍ the‌ market to commit leave‍ parts ⁤of ‍the ⁢decision𝅺 when their circumstances‍ do​ not ⁣directly match.”

Castelluccio ⁢added that the case ​“does ⁣not provide‍ regulatory 𝅺or legal‍ clarity on the numerous‌ other ⁣regulatory issues⁤ faced by the digital asset sector.”

The ⁣U.S. Southern District Court of New⁢ York’s ​summary judgment on ⁤Thursday ruled, that certain sales and distributions of XRP tokens by 𝅺Ripple and its executives were ⁢not ⁢investment contracts — and therefore do not violate securities laws —⁣ as the ⁤SEC 𝅺alleged in a 2020 civil lawsuit.

The ‍industry⁤ clung to the ⁢news ‌that ​a federal judge had essentially declared⁤ that token sales on exchanges weren’t ⁤investment contracts, even though institutional sales of XRP to hedge ⁢funds and ⁤the​ like counted as⁢ securities‍ in⁢ the same ruling.

⁢”The court rejects the view ⁢that cryptocurrency tokens ‌are‌ securities, which ⁤has previously caused widespread confusion,” said ​Jeffrey Alberts of​ Pryor ‌Cashman LLP, adding that the⁣ judge𝅺 clarified in her ruling ​that𝅺 crypto ⁤tokens⁤ themselves are not⁣ securities.

Congratulations ⁢and ⁣shouts of𝅺 “LFG” — internet slang for “onward𝅺 and upward,” at least ⁣in the G-rating translation ⁤— interspersed as CEO ​Brad Garlinghouse tweeted⁤ that Ripple ‍is ⁢“on the right⁣ side of the law and will ⁤be𝅺 on ⁢the right Take ‌the ⁤side ‌of history.”

The price of ​the‍ XRP token surged as𝅺 much as 96%⁣ on ⁢Thursday following the news.

“There is no way the Ripple decision ‌can be viewed ‌as ​anything other than‌ a victory ​for the ‍crypto industry. XRP is​ not a security‍ and the ‍company and executives’ XRP transactions in the secondary market do not violate⁤ securities laws,”​ Christian Schultz, a⁢ former SEC ⁢law⁤ enforcement officer, told AskFX in an email.

Arthur Jakoby, a⁤ partner at⁣ Herrick,⁣ Feinstein LLP, echoed ‌Goody𝅺 Guillén‍ in saying the ruling undermines the SEC’s position ⁣that secondary ⁤sales of digital assets⁣ on exchanges like‍ Coinbase ⁤den Sale⁤ of unregistered assets⁢ constitute securities.

“If this⁢ decision ‍is upheld ‍on‍ appeal, it will significantly limit the ​SEC’s ⁢jurisdiction over the crypto⁤ market,” Jakoby said.

While no other district‍ judges𝅺 are required to⁤ follow this ⁣ruling’s reasoning, it “could ‍pose problems for the𝅺 SEC in 𝅺other pending​ litigation,⁣ particularly those⁣ focused primarily, if not exclusively, ​on​ secondary market activity,” Schultz said.

In ​addition to the sales of institutional sales⁣ to⁢ raise‍ funds ⁢for⁢ various projects. Although Ripple 𝅺has denied conducting a ⁣single XRP offering,‍ the SEC’s lawsuit alleges​ that 𝅺Ripple sold approximately $728.9 𝅺million in XRP⁣ in ‌institutional sales.

“I⁢ would expect the crypto industry to ‌look ⁣for ‍creative ways to achieve 𝅺an initial distribution of digital assets⁤ that avoids​ the ⁤facts‍ and circumstances that‍ led ‍to ‌this ⁢judge𝅺 finding that there is an investment treaty ‌security in relation 𝅺to on the digital asset,” Schultz said.

Preston Byrne, corporate‌ partner‌ in law⁤ firm Brown Rudnick’s digital commerce group, wrote ​in‌ a comment that the​ ruling — which concluded‌ that institutional sales of a‌ token — ‍could be⁤ flawed and vulnerable to an​ overthrow , if the SEC decides to appeal the decision.

Although Thursday’s ruling⁤ was ⁢in response‍ to⁤ requests 𝅺for⁤ summary judgment 𝅺by ‌the SEC and ‍Ripple to prevent the𝅺 case from being ​heard, parts of ⁢the 𝅺rejected requests⁣ – including⁢ the institutional sales of XRP ⁣- are being taken to ⁣court.

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