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Ripple lawsuit: Now that ‘XRP is not a security’, what’s next?

There is always more after the ending. Always the next morning, and the next. Always changes, losses, and gains. Always one step after the other.

This quote coined from Ancillary Mercy, a novel written by American author Ann Leckie, matched the recent happenings connected to the Ripple [XRP] lawsuit against the SEC.

How much are 1,10,100 XRPs worth today?

On Thursday, 13 July, Judge Analisa Torress’ ensured that the long-standing Ripple lawsuit involving the U.S. SEC took a significant turn. The judge in her ruling, noted that XRP, the project’s native token, was “not a security.”

This development sparked jubilation around the crypto community. In fact, XRP, which had dwelled in complacent consolidation for weeks, also went on a non-stop rally moments after.

Despite the progress made on the matter, Ripple might still need to watch out for the regulatory body’s next steps. But before that, let’s have a quick overview of what led to the Ripple lawsuit in the first place.

Ripple’s woes began in 2020. At that time, the SEC alleged that the blockchain firm had sold XRP to the tune of $1.4 billion as an unregistered security.

While Ripple had fought tooth and nail to quench the allegations, the SEC maintained that the company violated securities laws.

As per the recent judgment, the SEC also partially emerged triumphant because Judge Torress agreed that the sale to institutions was an investment contract. One major reason the SEC went after Ripple and XRP was on the basis that the token passed the Howey Test.

Under the U.S. Securities Act of 1933 and the Securities Exchange Act of 1934, the Howey Test is used to determine whether an asset is an investment contract. For the asset in question to be considered one, it has to be in a common enterprise with the expectation of profit.

But Ripple’s repeated argument that XRP was not a security fell on deaf ears as the SEC proceeded with the legal action. However, the William Hinman emails which recently went public seemed to support Ripple’s claim.

In the email, the ex-SEC Director of Corporation Financial noted discussed how Bitcoin [BTC] and Ethereum [ETH] were not securities. Interestingly, some of the comments he made were beneficial to Ripple’s defense. And expectedly, the firm did not let go of the opportunity to use it as evidence.

Now that Ripple has gained an edge, its CEO Brad Garlinghouse mentioned that the declaration that XRP is not security was all he needed. Due to this, Garlnghouse noted that the case might not be up for trial.

The most important part of this ruling:

“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.”

This is a now a matter of law (not up for trial.)

— Brad Garlinghouse (@bgarlinghouse) July 13, 2023

Besides this point, the CEO also spoke to Bloomberg. In the interview, he beseeched the U.S. Congress to call the SEC to order. He noted that Ripple had moved a lot of its activity out of the country, and 90% of its customers were non- U.S.because of the prolonged issue.

A lot of our activities have been outside the U.S. jurisdiction because that’s where our customers’ demand is. But I think that’s where the U.S. is losing because the SEC had proritized power and politics over sound policy.

Furthermore, Garlinhouse opined that if the U.S. was to set a positive precedent for crypto, then it has to do something about the SEC calling all cryptocurrencies a security.

From a legal perspective, Ripple’s Chief Legal Officer, Stuart Alderoty cleared the air on some statements from the judgement. According to Alderoty, Ripple’s only concern with the court will be only be connected to institutional sales as per the court’s order.

The only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court’s order.

— Stuart Alderoty (@s_alderoty) July 13, 2023

However, it seems that Ripple and its XRP Army may have to deal with backlash going forward. This was because Charles Gasparino, who didn’t seem satisfied with the judgment called the XRP Army “an investment cult.”

Funny how investment cults work. When I wrote what XRP crowd loved they called me a hero. When I reported a few things they hate, I’m public enemy No 1. Little insight: I call ‘em as I see ‘em. No amount of trolling will change the way I do my job. In fact I love the battle ha!

— Charles Gasparino (@CGasparino) July 16, 2023

Moments before the accusation, Gasparino threw a question about Ripple’s transparency and management. He asked,

So does Ripple have $1 billion in cash laying around or $1 billion in XRP that they will cash in to pay the fine, which also dilutes retail? Another question I have for management.

This question did not sit well with the XRP community. As a result, many resorted to criticizing the FOX Business Network (FBN) correspondent.

As it stands, there is speculation that the SEC would appeal the judgment. And according to Marc Fegel, a formed SEC regional director, Ripple’s celebration could be short-lived.

Fegel, who shared his opinion via Twitter, noted that the judgment could be reversed based on the securities standpoint.

Maybe from a contract law standpoint, but not from a securities standpoint. When you buy stock, you don’t know who you’re buying it from; that the outcome is radically different for an investment contract is illogical. I think there’s a good chance the 2nd Circuit reverses.

— Marc Fagel (@Marc_Fagel) July 16, 2023

The now-retired lawyer also went ahead to say that the SEC had the upper hand if both parties appealed. Fegel, in responding to a comment that he should deal with the “loss” said,

My opinion is that both sides will appeal, and the SEC has a better than even chance of getting the ruling on the “programmatic sales” reversed.

Bill Morgan also addressed the chances of an appeal. According to the legal practitioner, Ripple might appeal that the customers’ sales part. He also added that this could end up in a settlement between both parties.

Ultimately I think Ripple would appeal on ODL customer sales on the basis that as a matter of law the Howey test does not apply to them

— bill morgan (@Belisarius2020) July 16, 2023

Read Ripple’s [XRP] Price Prediction 2023-2024

While Ripple’s CEO Garlinghouse did not explicitly say if the firm would appeal the case, he noted that the SEC, taking the same action would be a waste of time. In the aforementioned Bloomberg interview, he said,

As a matter of law, the law of the land right now is that XRP is not a security. Until there is an opportunity for the SEC to file an appeal, which would take years, frankly, we are very optimistic.

Source

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