On July 13, 2023, District Judge Analisa Torres of the United States District Court for the Southern District of New York issued a complex ruling in the SEC vs Ripple Labs lawsuit. Initiated in December 2020, the SEC accused Ripple Labs and its top executives, Bradley Garlinghouse and Christian A. Larsen, of allegedly unlawful offering and selling of unregistered securities (by which they meant XRP tokens), thereby violating Section 5 of the Securities Act of 1933. Additionally, Garlinghouse and Larsen were accused of aiding and abetting these violations.

Both parties submitted their summary judgment motions, and the court issued a mixed ruling. Specifically, the court granted the SEC’s motion for summary judgment only in relation to Institutional Sales, while denying it for other matters. On the flip side, Ripple’s motion for summary judgment was granted for Programmatic Sales, Other Distributions, and sales by Larsen and Garlinghouse but was denied concerning Institutional Sales. Importantly, the SEC’s motion for summary judgment on the aiding and abetting claims against Larsen and Garlinghouse was outright denied.

Judge Torres elaborated that Larsen’s and Garlinghouse’s XRP sales were programmatic and executed through blind bid/ask transactions on digital asset exchanges. She stated that these transactions did not fulfill the criteria to be considered investment contracts under the Howey Test. She also clarified that XRP, as a digital token, did not inherently meet the Howey requirements for an investment contract. Additionally, she noted that secondary market sales of XRP could not be classified as investment contracts since the funds did not trace back to Ripple.

Fast forward to September 16, 2023, attorney Bill Morgan shared insights on X, formerly known as Twitter. Morgan highlighted that although XRP was not classified as a security, the regulatory status of Ripple’s use or sales of XRP remained uncertain due to the SEC’s intent to appeal. He questioned whether Ripple or its customers could be confident about avoiding SEC scrutiny until the lawsuit and any appeals were fully resolved.

Morgan also noted that while Ripple might eventually include XRP in its Liquidity Hub, it was not surprising that more liquid cryptocurrencies like Bitcoin, Ether, USDC, and USDT were currently featured. He emphasized that Ripple would cater more to its shareholders and customers than to XRP holders. Morgan concluded by stating that Ripple has no legal obligations to XRP holders, echoing the court’s finding that XRP was not a security.

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