The cryptocurrency industry scored an early victory in its court battle with US regulators when a federal judge ruled Thursday that the sale of a digital asset called XRP on public exchanges complies with securities laws.
For years, the Securities and Exchange Commission has argued that digital assets constitute securities, like stocks and bonds traded on Wall Street, and should be subject to the same strict regulations. Last month, the SEC sued two of the largest crypto exchanges, Coinbase and Binance, accusing them of marketing unregistered securities to the public.
But Thursday’s ruling in a case involving crypto company Ripple could complicate that argument and provide fodder for the crypto industry to defend itself in court.
The SEC sued Ripple in December 2020, accusing the company of violating securities laws in the first major legal battle involving cryptocurrencies. In a 34-page ruling on Thursday, Judge Analisa Torres of the US District Court for the Southern District of New York said Ripple did not break the law when the cryptocurrency it created, XRP, was sold on public exchanges.
The decision was not an outright victory for the industry. Judge Torres also found that Ripple violated securities laws by selling XRP to institutional investors such as sophisticated hedge funds.
A spokeswoman for the SEC said in a statement that the agency is reviewing the decision. “We are pleased that the court found that XRP tokens were offered and sold by Ripple as an investment contract in violation of the securities laws under certain circumstances,” the statement said.
A representative for Ripple did not immediately respond to a request for comment.
Ripple was founded in 2012 by a group of developers chris larson, who has long been ranked among the richest crypto executives in the world. The company’s mission was to facilitate international payments using the XRP token.
Over the years, the token has become one of the most valuable cryptocurrencies in the market, and Ripple has developed a loyal following online. But the SEC lawsuit hit the company hard.
A resolution in the case was widely expected in the crypto industry, and prominent executives celebrated Judge Torres’ ruling as a significant victory.
“A big win today,” said Stuart Alderotti, Chief Legal Officer of Ripple. wrote on Twitter. “There are no securities for sale on exchanges.”
Tyler Winklevoss, one of the founders of Gemini Exchange, Tweeted“Adios Gary” is a reference to SEC Chairman Gary Gensler, who has led the government’s crackdown on the crypto industry.
But Ripple’s decision doesn’t mean the crypto industry will win its other cases. In the lawsuit against Binance and Coinbase, the SEC argued that a wide range of cryptocurrencies constitute securities. Judges in those cases would have to make separate determinations about whether the sale of those digital assets violated the law.