But the civil penalty is significantly less than the $2 billion sought by the SEC in the long-running feud between the crypto giant and the Wall Street watchdog.
This is a victory for Ripple, the industry and the rule of law. The SEC’s…
— Brad Garlinghouse (@bgarlinghouse) August 7, 2024
Ripple—whose founders were behind XRP—has been locked in a legal battle with the SEC for years. But last year, Ripple scored a partial court win against the SEC when a judge ruled that programmatic sales of XRP to retail investors did not qualify as securities.
Though the judge also said that $728 million worth of contracts for institutional sales did constitute unregistered securities sales, the ruling sent shockwaves through the industry.
The regulator faced ongoing criticism from politicians and the crypto industry for cracking down unfairly on the digital asset industry, and the ruling was seen as a success story for the digital asset ecosystem.
Investors have also interpreted today’s ruling as a win for the crypto industry as the fine is significantly smaller than what the SEC had sought.
As a result, the price of XRP shot up by over 18% after the news dropped. It is currently the only major cryptocurrency up today, having risen 16% in 24 hours, and trading hands for $0.60.
“There is no question that the recurrent, highly lucrative violation of [SEC rules] is a serious offense,” wrote Torres. “However, this case does not involve allegations of fraud, misappropriation, or other more culpable conduct.”
Torres also said that “the SEC has not established that Ripple’s failure to register the institutional sales caused substantial losses (or the risk thereof) to investors.”
Ripple CEO Brad Garlinghouse wrote on Twitter/X that the outcome was “a victory for Ripple, the industry and the rule of law.”
“The SEC’s headwinds against the whole of the XRP community are gone,” he said.
The SEC's Case Against Ripple
The SEC’s case against Ripple was built on the argument that the company sold unregistered securities in the form of XRP. The SEC argued that XRP was a security because it met the Howey Test, which defines a security as an investment contract that involves the investment of money in a common enterprise with the expectation of profits to be derived solely from the efforts of others.
Ripple argued that XRP was not a security because it did not meet the Howey Test. Ripple argued that XRP was a digital asset, similar to Bitcoin, and that it was not an investment contract. It also argued that the SEC’s interpretation of the Howey Test was too broad and could stifle innovation in the crypto industry.
The Court’s Ruling
Judge Torres ruled in favor of Ripple on some points, but not others. She found that Ripple’s programmatic sales of XRP to retail investors did not qualify as securities. This was a major victory for Ripple and for the crypto industry as a whole, as it meant that the SEC’s interpretation of the Howey Test was not as broad as the SEC had argued.
However, Judge Torres ruled that Ripple’s sales of XRP to institutional investors did constitute unregistered securities sales. This ruling was a setback for Ripple, but it was not as bad as it could have been. The judge did not order Ripple to pay any disgorgement of profits from its sales to institutional investors, which would have been a much more significant financial blow.
The Future of XRP
The SEC is likely to appeal the ruling, but it is unclear whether it will be successful. The ruling has already had a significant impact on the crypto industry, and it will be interesting to see how it plays out in the years to come.
The SEC’s case against Ripple was one of the most closely watched cases in the crypto industry. The ruling could have a significant impact on the future of the crypto industry, as it will provide much-needed clarity on the SEC’s position on cryptocurrencies.
Conclusion
The ruling is a major win for Ripple and for the crypto industry as a whole. The SEC’s headwinds against the whole of the XRP community are gone. Ripple CEO Brad Garlinghouse wrote on Twitter/X that the outcome was “a victory for Ripple, the industry and the rule of law.”
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