July 13 (Reuters) – Ripple Labs did not violate federal securities law by selling the XRP token on public exchanges, a US judge said Thursday, marking a historic legal victory for the cryptocurrency industry that has driven up the value of XRP.
XRP is up 25% after the ruling, according to data from Refinitiv Eikon.
But the ruling was also a partial win for the US Securities and Exchange Commission, which has filed dozens of cases against cryptocurrency developers, though Ripple Labs is the largest yet to be decided by the judge. US District Judge Annalisa Torres ruled that Ripple violated federal securities law by selling the XRP cryptocurrency directly to sophisticated investors.
This was the first time that a US judge ruled in favor of a cryptocurrency company to consider sales of certain digital assets outside of US securities law.
The judgment may be appealed. Ripple’s attorney and SEC spokesperson did not immediately respond to requests for comment Thursday.
The SEC had accused the company and its current and former executives of conducting a $1.3 billion unregistered securities offering by selling XRP, created by Ripple’s founders in 2012.
New York-based Torres said Thursday that the company’s sales of $728.9 million in XRP to hedge funds and other savvy buyers amounted to unrecorded sales of securities.
But Torres ruled that sales of XRP on public cryptocurrency exchanges were not securities offerings under the law, because buyers did not have a reasonable expectation of profit associated with Ripple’s efforts.
These sales were “blind supply/ask transactions,” she said, as “buyers could not tell if their payment went to Ripple, or any other seller of XRP.”
Torres ruled that sales of XRP on cryptocurrency platforms by Ripple CEO Brad Garlinghouse and co-founder and former CEO Chris Larsen, and other distributions including compensation to employees did not include securities.
However, Torres said the jury should decide whether or not Garlinghouse and Larsen helped the company break the law.
Garlinghouse celebrated the ruling in a Twitter post.
“Grateful to everyone who helped us reach today’s decision — one dedicated to all cryptographic innovation in the United States,” he wrote.
Larsen’s attorney did not immediately respond to a request for comment.
Gary Dewall, an attorney at Katten Muchin Rosenman, said the ruling is likely to be beneficial to Coinbase (COIN.O), the largest cryptocurrency exchange in the United States, which is fighting its own SEC case.
He said the market reaction indicated that the ruling was a “massive event for the industry”.
The ruling also renewed calls for Congress to pass legislation clarifying the status of digital assets.
House Majority Leader Webb Tom Emmer, a Republican, said in a Twitter post that the ruling states that “a token is separate and distinct from the investment contract it may or may not be a part of.”
“Now, let’s make it law,” he said.
Additional reporting by Tom Hales in Wilmington, Delaware. Editing by Chizu Nomiyama, Connor Humphreys and Leslie Adler
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