What Did Judge Torres’ July 13th Ruling Say?

On 13 July 2023, Hon. Analisa Torres, a district judge at the United States District Court for the Southern District of New York, gave her ruling in the SEC vs Ripple Labs lawsuit, which was initiated in December 2020.

The U.S. Securities and Exchange Commission (SEC) had filed a lawsuit against Ripple Labs Inc. and its two senior executives, Bradley Garlinghouse and Christian A. Larsen. The SEC claimed that Ripple and its leaders unlawfully offered and sold securities, which breached Section 5 of the Securities Act of 1933. The SEC further accused Garlinghouse and Larsen of aiding and abetting these violations committed by Ripple.

Both parties had submitted their summary judgment motions to the court. After reviewing the case, the court made a decision, partially granting and partially denying the motions from both the SEC and Ripple and its executives.

According to the ruling, the court granted the SEC’s motion for summary judgment concerning the Institutional Sales but denied it for other matters. On the other hand, the court granted Ripple’s motion for summary judgment regarding the Programmatic Sales, the Other Distributions, and the sales made by Larsen and Garlinghouse. However, the court denied Ripple’s motion concerning the Institutional Sales. As for the SEC’s motion for summary judgment on the aiding and abetting claim against Larsen and Garlinghouse, it was DENIED.

In particular, with regard to Larsen’s and Garlinghouse’s XRP sales, the judge said:

Like Ripple’s Programmatic Sales, Larsen’s and Garlinghouse’s XRP sales were programmatic sales on various digital asset exchanges through blind bid/ask transactions … Larsen and Garlinghouse did not know to whom they sold XRP, and the buyers did not know the identity of the seller. Thus, as a matter of law, the record cannot establish the third Howey prong as to these transactions. For substantially the same reasons discussed above … Because the Court determines that the record does not establish the first Howey prong as to the Other Distributions, the Court does not reach whether the second or third Howey prongs have been satisfied … Garlinghouse’s offer and sale of XRP on digital asset exchanges did not amount to offers and sales of investment contracts.

Here is what Judge Torres said about the XRP token:

XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract.

With regard to secondary market sales of XRP, Judge Torres said:

In any event, the SEC does not develop the argument that these secondary market sales were offers or sales of investment contracts, particularly where the payment of money for these XRP sales never traced back to Ripple, and the Court cannot make such a finding.

Who Is Charlie Gasparino and Why Is XRP Community Angry With Him?

Gasparino joined FOX Business Network (FBN) in 2010 as a Senior Correspondent. According to his bio on the Fox Business website, his work has been submitted for the Pulitzer Prize and won the New York Press Club award for best continuing coverage of the Wall Street research scandal.

In an article for the New York Post published on 22 July 2023, Gasparino dissected the recent ruling in the SEC v. Ripple Labs case, a decision that he claims has sent shockwaves through the $1.2 trillion crypto market.

Gasraprino says that in 2012 Ripple introduced a cross-border payment system that uses blockchain technology to facilitate faster transactions. This system, essentially a crypto version of the SWIFT system used by banks, aimed to make money transfers cheaper and more seamless via the blockchain.

Gasparino points out that when a company like Apple sells shares, whether through a private placement, an IPO, or a secondary offering of stock, they go to the SEC and file a bunch of stuff about their operations. This is known as “disclosure,” and it’s designed to help average people who buy stocks understand what the company is up to. Gasparino points out that Ripple didn’t do this when selling all that XRP, which led to the SEC suing the company and its top executives in 2020 for damages and disclosure.

In a ruling made on 13 July 2023, Manhattan federal judge Analisa Torres declared that Ripple’s XRP sales to institutional investors were in fact securities and demanded disclosure because these were so-called investment contracts. However, she ruled that Ripple’s disclosure-free sales to small investors were acceptable. According to her logic, they were not entering into investment contracts because they purchased their XRP through an intermediary like an exchange. Gasparino claims that since these “blind” sales aren’t securities, “it’s perfectly legal for Ripple to stiff the little guy on disclosure.”

Gasparino argues that this ruling has left the crypto industry in a state of uncertainty. He suggests that Congress needs to take crypto regulation out of the hands of the judiciary as soon as possible and fix this potentially transformative business before it moves to places with more rational regulations, like China.

In his view, the crypto industry will have to live with one of the more bizarre and dangerous court rulings he’s ever seen in his three decades of covering finance.

Here is a tweet Gasparino sent out yesterday that is bound to further anger members of the XRP community, whom he has been trolling ever since Judge Torres made her ruling on 13 July 2023:

Gaspaparino Says Judge Torres’ Ruling Was Not a Huge Win for XRP

Gasparino emphasized on 16 Aug 2023 that he doesn’t offer financial advice but merely reports on events. He highlighted his past accurate reports on the overvaluation of AMC and the failure of FNMA’s pump due to Trump’s decisions. Gasparino expressed skepticism about Judge Torres’s recent ruling on Ripple’s XRP, suggesting it wasn’t the significant victory many investors thought it was. He mentioned that Judge Rakoff had echoed this sentiment. While Gasparino isn’t sure about XRP’s future, he advises caution to potential buyers, given the mixed court rulings.

Featured Image Credit: Photo / illustration by vjkombajn via Pixabay