July 7, 2023 at 10:36 GMTModified date: August 9, 2023 at 08:40 GMT
July 7, 2023 at 10:36 GMT

Ripple vs SEC lawsuit: Judge rules XRP is not a security 

It’s been more than two years since SEC vs Ripple began, but some experts are predicting a verdict soon. Here’s a rundown of the latest $XRP lawsuit news…

Ripple vs SEC lawsuit: Judge rules XRP is not a security 

In December 2020, the United States’ Securities and Exchange Commission sued Ripple and its founders for raising $1.3billion through the sale of XRP which the regulator deemed as unregistered securities offering. The case sparked a widespread controversy on the classification of XRP, with Ripple Labs arguing that the digital asset functions as a currency, akin to Bitcoin and Ether (both of which the SEC had already deemed non-securities at the time). 

They also claimed that there was no signed contract and as a result, the XRP failed to meet the criteria of an investment contract. Despite Ripple’s defence, the repercussions were swift and severe. Numerous exchanges delisted XRP, while others temporarily halted trading in response to the regulatory pronouncements. This caused a significant blow to XRP’s value, as negative sentiment overshadowed the asset, resulting in a 40% drop at the time. 

Fast forward two years, and the XRP case has taken on even greater significance amidst a flurry of SEC actions targeting altcoins. With the SEC filing lawsuits against major platforms like Binance and Coinbase, the number of altcoins considered securities has reached 68, representing an estimated market capitalisation of $100bn. This is a further testament of the broader implication of the case’s outcome and its potential of setting a precedent in the industry.

A victory for Ripple could instil confidence among other cryptocurrency projects and provide clarity on the regulatory framework for similar digital assets. It will also potentially pave the way for other cryptocurrencies to assert their non-security status. On the other hand, a ruling favouring SEC will lead to increased regulatory scrutiny of other cryptocurrencies, particularly those that bear similarities to XRP in terms of their token distribution or initial coin offerings (ICOs).

As we keenly watch the latest Ripple lawsuit news, let us explore the events and timeline of the case till date.

The SEC vs. Ripple lawsuit

December 2020: The United States’ Securities and Exchange Commission (SEC) files a lawsuit against Ripple and its founders, alleging the illegal raising of $1.3bn through the sale of XRP, which the SEC considers an unregistered securities offering.

December 2020-January 2021: The lawsuit triggers a series of events, including exchanges delisting XRP or suspending trading temporarily. This causes a significant decline in XRP’s value as negative sentiment pervades the market.

February 2021: Ripple files a response to the SEC’s lawsuit, arguing that XRP is a currency and not a security. They claim that XRP functions similarly to Bitcoin and Ether, both of which the SEC has classified as non-securities.

March 2021: Ripple files a motion to dismiss the SEC’s lawsuit, emphasising that the allegations are unfounded and that the SEC failed to provide fair notice about XRP’s securities status.

April 2021: The court denies Ripple’s motion to dismiss the lawsuit, stating that the SEC’s allegations are plausible and the case should proceed.

May 2021: Ripple gains access to internal SEC documents that reveal the SEC’s ambiguous stance on the classification of cryptocurrencies like Bitcoin and Ether. Ripple uses this information to bolster its defence.

August 2021: Ripple files a Freedom of Information Act (FOIA) request to uncover additional SEC communications and documents regarding cryptocurrencies, aiming to shed more light on the SEC’s position and potential bias.

September 2021: The court grants Ripple’s request to access the SEC’s internal documents related to cryptocurrencies, marking a significant development in the case.

November 2021: CEO Brad Garlinghouse says Ripple is making good progress in the case.

July 2022: Magistrate Judge Sarah Netburn made a significant ruling by dismissing the SEC’s appeal seeking protection for William Hinman’s speech from disclosure.

July 2022: Federal District Judge Analisa Torres dismisses the SEC’s motion to revoke the amici curiae status granted to XRP holders.

August 2022: Magistrate Judge Sarah Netburn grants Ripple’s appeal, allowing them to serve subpoenas and authenticate videos of public remarks made by SEC officials.

September 2022: Court orders SEC to handover Hinman’s speech documents.

October 2022: Ripple obtains Hinman’s speech documents following court order.

December 2022: Ripple files redacted replies to the SEC’s opposition to its motion for summary judgement.

December 2022: Both parties filed their redacted replies in support of the motion for a summary judgement. 

May 2023: Judge Torres denies the SEC’s Motion to Seal the Hinman documents.

June 2023: SEC releases internal documents related to former commissioner William Hinman’s speech in line with court deadline.

July 2023: Court rules that sales of XRP on exchanges do not constitute investment contracts and by doing so, Ripple does not violate securities law.

Ripple lawsuit news today

The crypto space is eagerly scrutinising any latest Ripple XRP lawsuit news. Last month, retired securities lawyer Marc Fagel predicted that a verdict will be reached very soon. He said: “I try to avoid speculating, but my guess is a ruling is coming within days.”

Ripple CEO Brad Garlinghouse also predicted a similar timeline when asked during an event for DC Fintech Week in October 2022.

There were numerous other predictions of the case’s imminent closure, but even after the release of Hinman’s emails, there’s still uncertainty surrounding a possible timeline of Judge Annalise Torres’ ruling. 

But while the wait is on, what does the delayed outcome mean for Ripple and XRP? 

Many members of the crypto community have interpreted the delay in the verdict as a positive sign for Ripple, but software engineer at Ripple, Neil Hartner, cautioned against reading too much into the timing of the verdict.

Dismissing the assumptions, he drew parallels to the LBRY vs. SEC case, in which LBRY lost despite similar optimism during the prolonged proceedings. According to Hartner, the timing of the verdict is merely a reflection of the extensive volume of documents that need to be reviewed, emphasising the need to avoid premature conclusions.

For context, the SEC sued blockchain-based publishing company LBRY for similar reasons – illegal securities sale – and won the case in November 2022. The ruling came a year and half after the SEC filed charges.

Is XRP a security? 

Much of the argument surrounding the case revolves around whether XRP meets the specific requirements set forth by the Howey test. The test is used in the United States to determine whether an investment or asset qualifies as a security. For it to be considered a security, it must meet these four requirements.

  • Investment of Money: This requires that individuals contribute money or other valuable assets in exchange for the investment opportunity.
  • Common Enterprise: This refers to investors pooling their resources together into a collective effort to share in the profits and risks generated by the enterprise as a whole.
  • Expectation of Profits: This focuses on the investors’ reasonable expectation of earning profits from their investment.
  • Efforts of Others: This signifies that the success or failure of the investment is predominantly dependent on the efforts of a third party. 

In Ripple’s case, criterion 2 is the most hotly debated according to Managing Partner of the Deaton Law John E Deaton.

To win the case, the regulator must however find a way to prove to the judge that XRP investors pooled resources collectively and not individually to share profits and risks. 

Proving this seems like an uphill battle and Deaton believes it hands XRP significant chances, but the lack of clarity surrounding the application of the Howey test on cryptocurrencies still creates a sense of uncertainty, leaving the outcome of the case up in the air.

Deaton argues that the SEC has taken advantage of this lack of clarity to expand the scope of the Howey test in a manner that aligns with its own narrative, further complicating the case and intensifying the uncertainty surrounding the outcome.

It still remains unclear how the test will be applied to XRP, but one thing that is certain is that XRP’s classification remains hinged on the court’s ruling.

Ripple scores important win

In what is regarded as a landmark win and a precedent-setting verdict, Judge Analisa Torres ruled that the sale of XRP on exchanges do not constitute an investment contract and Ripple has not violated securities law by doing so.

While the court acknowledged that the institutional sale of XRP violated securities law, it remained unconvinced by the SEC’s third allegation. It did not find sufficient evidence to support the SEC’s claim that Ripple’s ‘other distributions’ involved funding its project by transferring XRP to third parties, who then sold it on public markets, thereby constituting a violation of securities law.

The partial win sent the cryptocurrency market soaring, with XRP leading the way by gaining about 66% within 24 hours of the pronouncement. Altcoins like Solana (SOL), Polygon (MATIC) and Cardano (ADA) that were recently termed ‘securities’ by the SEC also recorded remarkable gains.

Following the news, Coinbase promptly announced its decision to relist XRP after conducting a thorough review of Judge Torres’ ruling. Kraken and Gemini also expressed their intention to explore the possibility of relisting XRP.

What’s next?

Amidst the widespread euphoria surrounding Ripple’s legal victory, it’s important to note that Judge Torres’ ruling still carries uncertainties, leaving room for potential future developments or interpretations. For instance, she concluded that sale of XRP on exchanges is not a security because buyers on these exchanges are less knowledgeable and do not possess the same level of awareness as their institutional counterpart. Torres’ opined that there is no evidence that suggests that buyers on public exchanges know that XRP price is linked to the company’s efforts.

If the favourable ruling is only based on this, then there is a possibility that this could change if public investors attain a higher degree of knowledge. There is also a chance that the SEC may require companies like Ripple to make changes to their operation or business model that ensures that public investors on exchanges develop a better understand. Should this happen, then there may be grounds for an appeal, which throws the case open again.

While the crypto community is immersed in a state of excitement and enthusiasm, it is apparently ‘not yet uhuru’.


What happens if Ripple loses the lawsuit?

In the event of a loss in the lawsuit, Ripple would be compelled to make significant adjustments to its business model in order to adhere to securities regulations. Such a verdict would likely increase the likelihood of other altcoins facing similar pronouncements, potentially facing comparable outcomes. 

Should I still invest in XRP?

Despite the ongoing legal tussle, Ripple is still making progress on several fronts, most notably the development of its CBDC platform and partnerships with banks. These developments mean that XRP has the potential for future growth and utility within the cryptocurrency ecosystem. However, it is important to recognise that investing in XRP comes with inherent risks due to the uncertainty surrounding the legal outcome of the Ripple vs. SEC case.

Will XRP price go up or down after the lawsuit judgement?

XRP’s price action can be hugely affected by the outcome of the lawsuit. Because the market is driven by fundamentals and sentiments, it is logical to expect that a favourable outcome will lead to a price increase and vice versa. There are however exceptions to this and it is advisable to consider other factors and apply risk management when opening a position.

Is Ripple SEC lawsuit over?

The recent ruling undoubtedly hands victory to Ripple, but it is possible that the SEC could mount an appeal as there are still uncertainties and gaps surrounding Torres’ verdict.

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