[NEWS] US court rules that XRP for retail investors is "not a security"

Judge Analisa Torres of the U.S. District Court for the Southern District of New York on the 13th handed down the first ruling in a lawsuit brought by the U.S. Securities and Exchange Commission (SEC) over the securities issue of XRP, a cryptocurrency issued by the U.S. company Ripple.

In this ruling, she determined that XRP does not qualify as a security when sold to general investors.

However, when it is sold to institutional investors, it is an unregistered and illegal sale of securities. Specifically, she pointed out that investors with specialized knowledge would have understood the speculative value that Ripple could expect to earn profits from XRP.

On the other hand, she said that general investors who trade on cryptocurrency exchanges are not in an environment where they can recognize such speculative value, and therefore do not fall under the requirements of the Howey test, which determines whether they expect to receive a return from a third party.

There is no evidence that such general investors analyzed XRP documents, and the documents indicating the securities nature pointed out by the SEC cannot be said to have been widely shared, at least.

Given these circumstances, it was determined that XRP does not qualify as a security for individuals. In addition, it was concluded that XRP as a digital token is "not itself a contract, transaction, or scheme that embodies the Howey test requirements for investment contracts."

In December 2020, the SEC filed a lawsuit against Ripple, Inc. and its CEO Brad Garlinghouse, alleging that XRP is a security.

In response, Ripple has shown a stance of fighting the case to the fullest and has requested the release of speech materials by William Hinman, the former Director of Corporation Finance at the SEC, who mentioned the legal definition of crypto assets.

Following this ruling, the price of XRP rose significantly. At one point, it rose by about 100% from the previous day, reaching about $0.87 (about 120 yen).

Ripple CEO Garlinghouse commented on his Twitter, "I would like to thank everyone who cooperated in reaching today's ruling." He then said, "This outcome will have an impact on all cryptocurrency-related innovation in the United States."

The ruling in this case, which has attracted attention from both inside and outside the industry, may have some impact on other cryptocurrency-related lawsuits in the future.

Following the ruling, an SEC official said, "The decision that XRP sold under certain conditions to institutional investors and others constitutes an investment contract is correct, and we are pleased with this ruling," suggesting the possibility of appealing some of the arguments that were lost in the future.

References:Court documents, Garlinghouse's Twitter
Image: Shutterstock