US District Court Deals XRP a Big Win, the SEC a Big LossDate Written: October 5 2023 Written By: Joseph Singer
The regulation, or lack thereof, of cryptocurrencies in the United States is the subject of headlines weekly. Whether it be arguments over the legality of selling crypto tokens, how those token transactions are viewed by the IRS, or any number of other topics, the subject of cryptocurrencies and the US government is never far from the mind.
This week, US District Court judge Analisa Torres dealt a blow to the Securities and Exchange Commission (SEC) when she denied their motion to appeal a previous decision made by Judge Torres. The decision in question is from July, when Judge Torres ruled that some of Ripple’s offering of XRP tokens violated federal law but said that distributions of XRP tokens (ie. Not sold) did not. For the SEC, the appeal was based on the belief that such a ruling would set a “dangerous precedent” in terms of using current financial securities laws and regulations to govern cryptocurrencies.
Ripple’s Lawsuit Many Years in the Making
The decision by Judge Torres is not just a defeat for the SEC but a huge victory for Ripple, who have been wrapped up in this legal battle for many years now. All the way back in 2013, the SEC charged Ripple for breaking securities laws to the tune of $1.3 billion. This allegation was rooted in the sale of XRP as an unregistered security.
For some background, a security like a stock or bond can be sold freely on the open market if and only if that security is registered with the Securities and Exchange Commission. The SEC is saying, simply, that since Ripple sold XRP tokens that were not registered and approved by the SEC, they broke the law. On its face, this argument is one that seems to hold water because crypto tokens like XRP are, after all, bought and sold the same way stocks and bonds are.
If you are wondering why this was not an open-and-shut case back in 2013, the answer to that has everything to do with how the US government views crypto tokens. Because the US government does not recognize cryptocurrencies as legitimate securities, any attempt to have a token like XRP registered with the SEC would be a futile one that would end in failure. Understanding this, Ripple did not seek approval from the SEC because they did not believe what they were selling was governed by the SEC. In other words, the sale of XRP tokens cannot violate securities laws because XRP tokens are not officially considered to be securities in the eyes of the United States.
The laws and regulations that do or do not govern cryptocurrencies are still a subject for debate at both the personal and political level. This judgement is one that proponents of crypto can point to and celebrate, but at the end of the day the United States is still a confusing place to operate a business that deals with crypto.