The crypto industry notched a crucial win in its battle with regulators Thursday when a judge ruled that Ripple Labs did not violate federal securities law by offering its XRP token on public exchanges — undermining a key argument made by the Securities and Exchange Commission.
The news sent the price of XRP, a token designed for cross-border payments, up some 70% to about 92 cents on the news.
The opinion from Judge Analisa Torres of the Southern District of New York, who stated that XRP was "not necessarily a security on its face," partially validated the crypto industry's contention that digital assets should not be regulated as securities. The SEC, under Chairman Gary Gensler, has aggressively argued otherwise.
The Torres ruling did fall partly in the SEC's favor, as she found that some of Ripple's sales — to hedge funds and other sophisticated buyers — did violate securities laws.
Still, Ripple's chief legal officer, Stuart Alderoty, called it "a huge win."
"As a matter of law," he tweeted, "XRP is not a security...Maybe we can now start a rational conversation about crypto regulation in this country."
An SEC spokesperson said the agency was pleased with the court's finding that upheld its argument that some XRP transactions were illegal. "We'll continue to review the decision," the spokesperson said.
Under Gensler, the financial watchdog has taken an openly hostile position toward the crypto industry. Gensler has said that most crypto tokens — with bitcoin as a notable exception — are securities that fall under the SEC's jurisdiction. Recently, the SEC has gone after some of the biggest names in crypto, including Binance and Coinbase, accusing them of running illegal exchanges in the United States.
Thursday's ruling comes after a three-year legal battle and sets a precedent for other crypto cases, said Teresa Goody Guillén, a former attorney with the SEC office of the General Counsel who is now a partner at BakerHostetler.
"This is a significant opinion that has the potential to change the landscape of the SEC's enforcement efforts," she said in an email, adding that the case will help Coinbase and Binance defend themselves against the SEC's allegations that they are operating as unregistered securities exchanges, brokers and clearing agencies.
Part of the Ripple case remains unsettled and is expected to go to trial. Torres found that it will be up to a jury to decide whether Ripple executives aided in the illegal sales to institutional investors.