The price of Ripple’s XRP token skyrocketed last night after scoring a partial win against the US Securities and Exchange Commission (SEC) in a federal court ruling that said the token should not be considered as securities when sold on exchanges to retail investors. However, if sold to investment funds and other financial institutions (known as institutional investors), then the coins are classed as a form of securities.

Following this decision, the token’s price instantly spiked from US$0.47 (approximately RM2.19), climbing 96% to as high as US$0.93 (approximately RM3.80) at one point – its highest level since March 2022 – as investors reacted to the news. Since then, the price of XRP has moderated to hover between US$0.85 to US$0.73; as of the time of writing, the token is trading at US$0.79.

The legal battle that brought on this landmark court ruling began all the way back in 2020, when the SEC filed a suit against Ripple and two of its executives – co-founder and former CEO, Christian Larsen, and current CEO, Bradley Garlinghouse – for failing to register XRP as a security before selling them to raise over US$1.3 billion. This was part of the commission’s push to categorise numerous cryptocurrencies – including Ripple’s XRP – as securities, which effectively puts the tokens under its oversight.

Notably, one of the commission’s key arguments for its case is that Ripple had failed to provide important information to investors (both retail and institutional), “which deprived potential purchasers of adequate disclosures about XRP and Ripple’s business, and other important long-standing protections that are fundamental to our robust public market system.” In other words, investors – particularly retail investors – have not been adequately protected as they were deprived of key information to assess the risks of their investment.

If the SEC is successful in its bid, there will be a chain of consequences and implications for the industry – as you can expect. It would mean that existing token issuers and US crypto exchanges will both be classified as unregistered securities sellers and brokers, and must go through a tedious registration process to gain SEC’s approval if they wish to list and sell tokens to the public going forward.

Understandably, given the massive impact of the case, avid investors in the US crypto community have been watching this case closely – and this latest ruling is a significant one. Essentially, the court ruling by US District Judge Analisa Torres hinged on the fact that there is a distinction between sales to retail investors and to institutional investors, with the latter inherently being more informed about XRP’s pricing than the former.

“A reasonable investor, situated in the position of the Institutional Buyers, would have been aware of Ripple’s marketing campaign and public statements connecting XRP’s price to its own efforts,” said Judge Torres. Meanwhile, individual investors are deemed as “generally less sophisticated” and therefore, may not possess “similar understandings and expectations” of Ripple and XRP.

In stating that, Judge Torres ruled that the SEC’s motion is denied in part, making it only a partial win for Ripple. In short, Ripple is not guilty of providing unregistered securities offering to retail investors (because the token is not considered to be a form of security in this case). However, the issuer is guilty of doing so with regard to institutional investors.

We said in Dec 2020 that we were on the right side of the law, and will be on the right side of history. Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come.

— Brad Garlinghouse (@bgarlinghouse) July 13, 2023

Following the order, one of the executives charged, Garlinghouse, said that the decision is “one that is for all crypto innovation in the US”. He also commented that “[w]e said in Dec 2020 that we were on the right side of the law, and will be on the right side of history.” Coinbase, the largest crypto exchange in the US, also said that it would relist the coin on its platform, given the court’s decision.

It should be noted, however, that Judge Torres’ ruling is only an intermediate ruling in a larger case. The case is set to go to a jury trial to decide on other claims.

(Sources: CoinDesk, Washington Post)

• TAGS:
• Bradley Garlinghouse
• Christian Larsen
• Court Rulings
• Cryptocurrency
• Judge Analisa Torres
• Longform
• Ripple
• US Securities and Exchange Commission (SEC)
• XRP