Ripple’s sale of XRP tokens to exchanges and via algorithms did not constitute investment contracts, but the institutional sale of the tokens violated federal securities laws, a New York court ruled Thursday.
The court published the conclusions in an order partially granting a motion for summary judgment in the landmark Securities and Exchange Commission case against the blockchain platform. The SEC filed lawsuits against the company and its executives, CEO Brad Garlinghouse and co-founder Christian Larsen, in 2020 for failing XRP as collateral before offering around $1.3 billion worth of tokens became.
Per the U.S. District Court’s order for the Southern District of New York, Ripple initially sold approximately $728.9 million worth of XRP directly to institutional buyers, hedge funds, and other parties. These “institutional sales” constituted the unregistered offering and sale of investment contracts and violated the federal securities law, the order said, as it found that investors bought XRP in anticipation of cashing in on Ripple’s work.
Ripple used the funds it received from institutional sales to “promote and grow the value of XRP by developing uses for XRP and protecting the XRP trading market,” the order reads.
The court granted the SEC’s summary judgment motion with respect to the institutional sale but otherwise denied it.
The “programmatic sale” of XRP via exchanges and algorithms was not considered a sale of securities, as the SEC cannot definitively say that speculative investors “had a reasonable expectation that profits would be made from the corporate or managerial efforts of others.”
“There is no evidence that a reasonable programmatic buyer, who was generally less sophisticated as an investor, shared similar “understandings and expectations” and could analyze the numerous documents and statements highlighted by the SEC, which contain (sometimes inconsistent) statements about many Across social media platforms and news sites from a variety of Ripple spokespersons (with varying levels of authority) contained over an extended period of eight years,” the order reads.
Larsen and Garlinghouse’s own sale of XRP falls into this category along with other distributions, the order said. Ripple’s motion for summary judgment in lieu of “programmatic sales,” other distributions, and the sales of Larsen and Garlinghouse was granted.
Another motion by the SEC for summary judgment on an “aid and accessory claim” against the two executives was denied because the court believed that “it is not clear whether Larsen and Garlinghouse were aware of or recklessly flouted these securities laws, and did not.” the laws of other regulatory regimes.” , applied to XRP.”
“We said in December 2020 that we are on the right side of the law and we will be on the right side of history. We’re grateful to everyone who helped lead us to today’s decision – a decision that pertains to all crypto innovation in the US to come,” Garlinghouse tweeted follow the order.
UPDATE (July 13, 16:44 UTC): Adds details from the order throughout the article.