A federal judge ruled that the Ripple Labs Inc. token is a security when sold to institutional investors but not the general public, granting a partial win to the SEC in a long-awaited decision that could help determine the future of crypto regulation.
US District Judge Analisa Torres in New York on Thursday said that the crypto firm’s sales of the XRP token to sophisticated investors met the test for an investment contract under federal securities law.
“Institutional Buyers would have understood that Ripple was pitching a speculative value proposition for XRP with potential profits to be derived from Ripple’s entrepreneurial and managerial efforts,” the judge wrote.
But Torres ruled that didn’t apply to programmatic investors, meaning the broader public. She said there was no evidence that such investors could parse the many statements made by Ripple about XRP. The judge said many statements cited by the SEC may not have been shared with the broader public.
Whether cryptocurrencies are securities has been a major question hanging over the industry, which has long fought efforts to regulate it by arguing that they are not.
The SEC sued San Francisco-based Ripple and top executives in December 2020. It accused the company, co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse of misleading investors in XRP by selling more than $1 billion worth of the tokens without registering them, depriving investors of information about the cryptocurrency and Ripple’s business.
The SEC didn’t immediately respond to a request for comment on the decision. Garlinghouse seemed to claim victory in a tweet on Thursday.
“Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come,” he wrote.
Uncertainty about the status of crypto hasn’t stopped the SEC from taking on crypto firms. On Thursday, the regulator sued Celsius Networks and its former chief executive officer, Alex Mashinsky, and has previously sued several other firms.
(Updates with detail from ruling.)