Ripple Chief Legal Officer Claims Terra Ruling Changes Nothing About the Ripple Ruling

Updated: 01 August 2023

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Following Judge Torres’ ruling that XRP was not a security, many assumed that the SEC v. Ripple case would impact how the US legal system views other cryptos. However, the Ripple ruling’s impact appears to affect each case differently.

In the case of SEC v. Terra, Judge Jed Rakoff allowed the SEC to continue its lawsuit, saying that he disagreed with Judge Analisa Torres’ ruling on XRP’s security status.

Ripple’s own Chief Legal Officer, Stuart Alderoy, commented on the new development, stating that the ruling against Terraform Labs would not impact Ripple’s own status.

Alderoy claimed,

The ruling in the Terra case changes NOTHING about the Ripple ruling that XRP is not a security.

Judge Rakoff disagrees with the Ripple ruling

Judge Rakoff’s decision to let the SEC proceed with its lawsuit against Terra came yesterday, July 31st, several weeks after Judge Torres argued that the programmatic sales of XRP did not constitute a securities offering.

This was still only a partial victory for Ripple, as the judge also ruled that XRP sales to institutional investors did meet this threshold.

Rakoff, however, did not see it that way. He said:

The court declines to draw a distinction between these coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities, and those sold through secondary market transactions to retail investors are not.

Following the same logic, Rakoff said that the SEC allegations against Do Kwon and TFL should apply to everyone who bought LUNA/UST tokens. According to him,

Secondary-market purchases had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf.

The Terra ruling will not impact Ripple

After Judge Rakoff’s statement, many in the XRP community started worrying that the opposing opinion might somehow negatively impact Ripple and XRP’s status.

However, Ripple’s CLO said that this is not going to happen. He argued that Rakoff misunderstood the reasoning behind the XRP ruling.

Let me be clear about some confusion going around – the ruling in the Terra case changes NOTHING about the Ripple ruling that XRP is not a security. Also… https://t.co/PhaVix7HM4

— Stuart Alderoty (@s_alderoty) July 31, 2023

He noted that the judge had no reason to doubt that everything the SEC alleges is accurate and that this is true for Terra and Ripple. However, Judge Torres’ decision came after a full factual record developed for two and a half years was presented to the court.

1/ The Terra case is just starting and that Judge has to accept everything that the SEC alleges as true (for now). Our ruling came after a full factual record (developed over 2+ years) was presented to the Court.

— Stuart Alderoty (@s_alderoty) July 31, 2023

Rakoff assumes that the SEC, as the country’s securities watchdog, knows how to recognize security. However, given the lack of crypto regulations, each project, its coin, and its case is complex and unique. In Ripple’s case, XRP was simply proven not to be a security.

2/ I'll let others dive into the Terra Judge’s comment, including his apparent misreading of the Ripple Judge’s reasoning – ex: missing the point that secondary market traders can’t “invest money” in anyone or anything if they don’t know who they are buying from.

— Stuart Alderoty (@s_alderoty) July 31, 2023

This opinion was echoed by crypto attorney John Deaton, saying that Judge Torres applied the Howey factors to facts during her summary judgment. Meanwhile, Rakoff was only ruling on a Motion to Dismiss.

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