The U.S. Securities and Exchange Commission’s (SEC) lawsuit against Ripple will go to trial after a federal judge granted summary judgment motions from both sides, court documents from 13 July show.
According to the filing, Southern District Court of New York Judge Analisa Torres declined to make a conclusive decision on the lawsuit between the regulator and the company, and instead granted summary judgment motions from both sides. Judge Torres ruled that while the sale of Ripple’s native token, XRP, through exchanges and algorithms did not constitute an investment contract, its institutional sale did violate federal securities laws. The court document reads:
“For the foregoing reasons, the SEC’s motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants’ motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales.”
The SEC filed a lawsuit against Ripple, its CEO Brad Garlinghouse, and co-founder Christian Larsen back in 2020, alleging they broke securities laws by failing to register the XRP token as security. In her partial judgement, Judge Torres ruled that the initial sale of around $728.9 million worth of XRP to institutional buyers and hedge funds did constitute the unregistered offer of investment contracts in violation of federal securities law, as investors would have purchased the token with expectation of profit.
The judge also ruled that “programmatic sales” of the token through exchanges and algorithms did not qualify as selling securities as the regulator could not prove that speculative investors had a “reasonable expactation of profits”. Garlinghouse and Larsen’s own sale of XRP, as well as “distributions to employees as compansation and to third parties” also did not qualify as selling securities.
Thursday’s ruling could turn out to be a major win for the crypto community, as it could help determine how crypto tokens are viewed under U.S. securities law. The decision that selling crypto through exchanges — and not to institutional investors — do not constitute securities could potentially influence a number of lawsuits that the SEC has filed against several platforms and exchanges.