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In a significant legal victory for Ripple, US District Judge Analisa Torres ruled in favor of Ripple in the lawsuit filed against it by the US Securities and Exchange Commission (SEC) in December 2020.
The SEC had alleged that Ripple had raised over $1.3 billion through the sale of XRP to investors, which should be classified as securities.
However, the court noted that programmatic XRP sales did not constitute investment contracts, as they lacked the economic reality of institutional sales, which cut in favor of finding “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”
Ripple Defeats SEC’s Claims
According to the court ruling, Institutional buyers who directly purchased XRP from Ripple had a reasonable expectation that their investment would contribute to improving the XRP ecosystem and increase the value of XRP.
However, programmatic buyers accounted for less than 1% of global XRP trading volume, and the sales were “blind bid/ask transactions” where buyers could not have known if their payments went to Ripple or any other seller of XRP.
The court further noted that Ripple did not make any promises or offers concerning programmatic sales, as the company did not know who was buying the XRP, and the purchasers did not know who was selling it.
This provides much-needed regulatory clarity for the cryptocurrency industry and clarifies the legal status of XRP. However, the SEC may appeal the decision, and the legal battle is likely far from over.
Nonetheless, Ripple’s victory is a significant boost for the company, which has long argued that XRP is a legitimate cryptocurrency used for cross-border payments and not subject to SEC regulation.
Furthermore, the court’s decision to cite the Howey test to determine whether XRP sales constituted investment contracts is a major blow to the SEC’s case. The judge concluded that the SEC had failed to prove that XRP sales met the criteria for such contracts.
While the ruling guides other companies in the cryptocurrency industry, it also suggests that the economic reality of a transaction will be a key factor in determining whether it constitutes an investment contract.
Ripple’s legal battle with the SEC has caused significant damage to its business, leading to exchanges delisting XRP and causing a decline in its value. Nonetheless, the ruling is a significant victory for the company, which has vehemently denied the SEC’s allegations and argued that XRP is a currency, not a security.
XRP On The Rise, Ripple’s Legal Win Could Propel It To $1
The recent court ruling in favor of Ripple has significantly impacted XRP’s price, which surged by over 23% within hours of the decision. XRP reached a high of $0.6472, up from its earlier price of around $0.473.
The legal victory for Ripple removes a major source of uncertainty for the cryptocurrency and provides much-needed regulatory clarity for the industry.
Many analysts had previously predicted that XRP could reach the $1 mark, and the recent court ruling has brought this closer to reality.
The cryptocurrency has been on an upward trend since the start of the year, and the legal victory for Ripple is expected to accelerate this trend. Experts believe the ruling could also lead to a resurgence of interest in XRP among institutional investors, who had been cautious due to the SEC’s lawsuit.
Featured image from Unsplash, chart from TradingView.com
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