XRP and Coinbase Rise as Investors Take Favorable View of Ripple Decision

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Brad Garlinghouse, CEO of Ripple Labs Inc., Photographer: Kyle Grillot/Bloomberg

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Ripple Labs Inc. has won what looks like a partial victory in the lawsuit filed against it by the Securities and Exchange Commission, sending cryptocurrency prices significantly higher as Judge Analisa Torres ruled that certain crypto transactions -currency did not count as securities sales. While the district court ruling is not binding elsewhere, it indicates that the SEC’s insistence that most digital assets are securities that must be registered, which is impossible under current regulations. , can be successfully challenged.

This has implications for other actions taken by the agency against crypto exchanges and other intermediaries. The SEC sued Ripple in December 2020, alleging that sales of $1.3 billion in XRPXRP digital assets to XRP since 2013 constituted an unregistered securities offering.

In summary judgment, the court determined that the $757.6 million worth of XRP that Ripple sold through programmatic sales to retail buyers. The court also ruled that using XRP as payment for employee salaries and other services did not meet the criteria of an investment contract. While institutional buyers reasonably expected Ripple to use the capital it received from its sales to improve the XRP ecosystem and thus increase the price of XRP, programmatic buyers could not reasonably expect the same thing.

Ripple was given 80 billion units of the XRP currency (out of a limit of 100 billion) by the original founding team to help grow its blockchain, the XRP ledger. This contrasts with the more typical pattern of initial coin offerings sold by currency creators to other investors, although founding teams or decentralized foundations may retain large holdings.

The decision was not a complete crypto victory, as the judge determined that the $728.9 million of XRP sold by the company to institutional investors was an illicit offer, ruling that based on the Taken as a whole, the Court finds that reasonable investors, in the position of institutional buyers, would have purchased XRP in the expectation that they would benefit from Ripples’ efforts.

The value of all cryptocurrencies jumped nearly 6% to $1.3 trillion after the decision was announced, and XRP jumped 76% to 82 cents, according to CoinGecko, making it the fourth largest digital asset. Share price on Coinbase exchanges jumped nearly 20% as investors viewed the move as bullish for the company’s fight against the SEC, which accused it of acting as an untrusted securities market. checked in. Interestingly, the exchange actually abandoned XRP trading in 2020 when the Ripple combination was announced.

However, today’s decision does not necessarily give the exchanges the green light. Stephen Palley, partner at Brown Rudnick and co-chair of the digital commerce practice, told Forbes that there is an important nuance to consider when considering the precedent-setting power of this decision. for other cases. . The court indicates in a footnote that it does not rule on whether or not secondary transactions are securities transactions, Palley said. He said there was no way anyone could use these platforms [crypto exchanges] know that Ripple is on the other side. Therefore, the court concluded that there could be no expectation of profit based on Ripple’s efforts.

Palley wonders if this logic will make it harder for other courts in the future to argue that secondary sales are investment contracts. I don’t see how you can conclude that a transaction where Ripple was on one side would not be securities transactions, but transactions between two non-Ripple parties would be.

Palley said he wouldn’t be surprised if today’s rulings were appealed and eventually made it to the Supreme Court, before the trial even officially began. The remaining issues would be the type of remedy for illegal institutional sales, if this decision is upheld. Although the SEC can only file civil charges, the regulator could seek financial penalties such as disgorgement of profits.

Other judges, including those dealing with other SEC actions against cryptocurrency-related companies, are not necessarily bound by today’s judgment according to Palley.

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