Despite declaring XRP as a non-security, the court finds that Ripple’s past sales to institutional investors constitute an unregistered security offering.
Judge Analisa Torres, the presiding judge of the SEC v. Ripple lawsuit, has finally issued the much-anticipated ruling after nearly three years of legal battle.
The judge’s judge’s decision is seen as a mixed ruling, as each party won and lost some aspects of the case. While Judge Torres ruled that XRP itself is not a security, she concluded that Ripple’s XRP sales to institutional investors constituted an unregistered security offering.
Yesterday, Ripple’s General Counsel Stuart Alderoty confirmed that the court found the company’s XRP sales to institutional clients as an investment contract.
These institutional investors bought XRP directly from Ripple in the past, worth $728.9 million. Notably, the amount is lower than the $1.3 billion filed in SEC’s original complaint.
Rationale Behind the Decision
According to the ruling, Ripple’s XRP sales to institutional investors were deemed unregistered securities due to an agreement by these investors to lock up their coins for a specific period.
In this context, these XRP coins can’t be regarded as anything other than a speculative investment within the lock-up period.
Furthermore, the ruling highlighted investment contracts showing that these investors purchased XRP for resell purposes. Moreover, the court ruled that these institutional clients bought XRP hoping to make profits based on Ripple’s efforts. Per the ruling, Ripple’s sales to institutional clients satisfy all prongs of the Howey test.
Further Court Proceedings to Come
Meanwhile, Ripple’s chief legal officer (CLO) noted that there will be further court proceedings on the issue.
“… There will be further court proceedings only on these institutional sales per the Court’s order.”
The only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court’s order.
— Stuart Alderoty (@s_alderoty) July 13, 2023
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