On July 12, Judge Analisa Torres of the Southern District of New York determined that when sold to members of the public, Ripple's XRP token does not constitute an "investment contract" and therefore is not a security. Stuart Alderoty, the chief legal officer of Ripple Labs, said in a July 25 episode of TechCrunch's Chain Reaction podcast that the judge's decision could be relevant to other ongoing litigation, including the Securities and Exchange Commission's (SEC) lawsuits against Binance and Coinbase.
"The core allegation...both in the Coinbase lawsuit and in the Binance lawsuit - that an exchange trading a digital token would therefore need to register as a national security exchange - that was repudiated by this judge in our case," Alderoty said in a TechCrunch podcast. "We have a clear statement that the trading of a digital token - in this case XRP, but I think you can analogize to other tokens...that does not make a contract for an investment, and therefore there's no security, and therefore there's no role for the SEC to play. I think that ruling will play well in the Coinbase case, and it should play equally well on that claim in the Binance case."
In 2020, the SEC accused Ripple of violating securities laws by offering the sale of the token XRP, but Ripple argued that XRP was not a security, according to Investopedia. Earlier this month, the district court ruled that when sold to members of the public, XRP is not a security. The court determined that when XRP is sold to institutional investors, it does qualify as a security.
Ripple CEO Brad Garlinghouse tweeted on July 14 that the court decision contradicts assertions made by the SEC about digital assets, noting also that the decision could extend to other cryptocurrencies.
"This ruling directly undercuts the SEC’s claims that nearly all tokens are inherently securities – likely to set a positive precedent for other digital tokens in the US," he said in the tweet.
In June, the SEC filed lawsuits against Coinbase, the largest crypto exchange in the U.S., and Binance, the largest crypto exchange in the world, accusing both companies of violating securities laws, Federal Newswire previously reported. Coinbase CEO Brian Armstrong said in a tweet after the SEC filed its lawsuit that he saw the litigation as an opportunity to gain regulatory clarity for the industry.
"We're proud to represent the industry in court to finally get some clarity around crypto rules," Armstrong said in his tweet. He also emphasized that the "SEC and CFTC have made conflicting statements, and don't even agree on what is a security and what is a commodity."
Binance also responded publicly to the SEC's lawsuit.
"Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry," the company said in a blog post.
SEC Chair Gary Gensler has stated that while he believes bitcoin is a commodity, “everything else other than bitcoin is a security,” CryptoSlate reported in February.
