After years of deliberation, a federal judge in New York has ruled that the crypto token XRP created by Ripple Labs Inc. is classified as a security when it was sold to institutional investors, but not the public at large.
“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,” wrote U.S. District Judge Analisa Torres in the decision.
However, Judge Torres also said that this ruling did not apply to general public investors because they had no way to parse the many statements made by Ripple that the Securities and Exchange Commission cited in its lawsuit as evidence the token was a security.
The ruling represents a partial victory for the San Francisco crypto company, which has been held in limbo under litigation with the SEC since 2020. The regulator sued Ripple and its co-founders, Christian Larsen and CEO Brad Garlinghouse, for misleading investors by $1 billion worth of the cryptocurrency without first registering it as a security.
“Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come,” Garlinghouse wrote in a tweet, lauding the judge's decision.
Back in May, Garlinghouse estimated that Ripple would spend a total of $200 million on the SEC lawsuit.
Questions over whether cryptocurrencies count as securities have weighed heavily on the entire crypto industry with the SEC recently suing top crypto exchanges Binance and Coinbase for selling unregistered securities on their platform. The SEC has accused a number of cryptocurrency tokens of being securities, including SOL, which was created by San Francisco-based Solana Labs.
"This is a big deal," said Sheila Warren, CEO of the Crypto Council for Innovation, in an email statement. "It’s been clear since this case was filed that it would have implications across the entire industry. This fundamentally undercuts the SEC’s argument that it has the authority over these underlying assets and that regulatory clarity already exists. This is certainly a call to action to Congress and will light a fire under current proposals. This is a significant thaw in the regulatory permafrost that the US has been stuck in.
In response to the news of the ruling, Coinbase (Nasdaq: COIN) stock has soared rising over 17% on Thursday. The news gives hope of a favorable outcome for the company's own suit with the SEC. Coinbase had previously unlisted XRP from its exchange to avoid the ire of regulators.
