- September 16, 2023
- Posted by: legaleseblogger
- Category: Related News
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Complex Ruling in SEC vs Ripple Labs Lawsuit
On July 13, 2023, District Judge Analisa Torres of the United States District Court for the Southern District of New York issued a complex ruling in the SEC vs Ripple Labs lawsuit. This lawsuit, which began in December 2020, involved allegations by the SEC against Ripple Labs and its top executives, Bradley Garlinghouse and Christian A. Larsen.
The SEC accused Ripple Labs, Garlinghouse, and Larsen of unlawfully offering and selling unregistered securities, specifically referring to XRP tokens. These actions were believed to be in violation of Section 5 of the Securities Act of 1933. Additionally, Garlinghouse and Larsen were accused of aiding and abetting these violations.
Summary Judgment Motions and Mixed Ruling
Both the SEC and Ripple Labs submitted summary judgment motions, and Judge Torres issued a mixed ruling. The court granted the SEC’s motion for summary judgment regarding Institutional Sales, but denied it for other matters. On the other hand, Ripple’s motion for summary judgment was granted for Programmatic Sales, Other Distributions, and sales by Larsen and Garlinghouse, but denied concerning Institutional Sales. Importantly, the SEC’s motion for summary judgment on the aiding and abetting claims against Larsen and Garlinghouse was outright denied.
Judge Torres provided further details in her elaboration of the ruling. She stated that Larsen’s and Garlinghouse’s XRP sales were conducted programmatically through blind bid/ask transactions on digital asset exchanges. According to her analysis, these transactions did not meet the criteria to be considered investment contracts under the Howey Test. Furthermore, she clarified that XRP, as a digital token, did not inherently meet the Howey requirements for an investment contract. Additionally, she highlighted that secondary market sales of XRP could not be classified as investment contracts since the funds did not trace back to Ripple.
Uncertainty Surrounding Regulatory Status
Looking ahead to September 16, 2023, attorney Bill Morgan shared insights on X, formerly known as Twitter. Morgan pointed out that although XRP was not classified as a security, the regulatory status of Ripple’s use or sales of XRP remained uncertain due to the SEC’s intent to appeal the ruling. This uncertainty raised questions about whether Ripple or its customers could feel confident about avoiding SEC scrutiny until the lawsuit and any subsequent appeals were fully resolved.
Morgan also noted that while Ripple might eventually include XRP in its Liquidity Hub, it was not surprising that more liquid cryptocurrencies like Bitcoin, Ether, USDC, and USDT were currently featured there. He emphasized that Ripple would prioritize its shareholders and customers over XRP holders. In line with the court’s finding that XRP was not a security, Morgan concluded by stating that Ripple had no legal obligations to XRP holders.
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