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A New York federal judge rejected a landmark ruling in favour of Ripple Labs, Inc. and said crypto tokens sold to the public may be considered securities in a setback for the crypto industry that sent XRP tumbling.
US District Judge Jed Rakoff dismissed the July 13 ruling, which had said that only tokens sold to institutional investors are securities, when he denied a Terraform Labs motion on Monday to dismiss a lawsuit brought against it by the Securities and Exchange Commission (SEC).
“In doing so, the court rejects the approach recently adopted by another judge of this district in a similar case,” 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.”
Terraform had argued that the Ripple ruling invalidated the SEC’s case against it.
XRP tumbled on the news and is down 2.3% in 24 hours amid downbeat sentiment toward cryptocurrencies after the ruling.
SEC Hinted it Will Appeal Ripple Ruling
The SEC has hinted it will appeal the ruling, made by Judge Analisa Torres on July 13, and in the Terraform case urged Rakoff to reconsider it. The ruling was widely hailed as a landmark breakthrough for the crypto industry and sent cryptocurrencies soaring.
But former SEC enforcement lawyer John Reed Stark has said the original ruling is “on shaky ground’’ and is likely to be overturned.
“The bottom line: Stock is always stock – it can’t transmogrify into ‘non-stock,’’’ he said. “So my take is that the SEC will appeal the Ripple decision to the 2nd Circuit and the 2nd Circuit will overturn the District Court’s rulings.’’
Ripple Lawyer Says There’s ‘Confusion’
In a tweet, Ripple’s chief legal officer Stuart Alderoty said there is “confusion going around’’ the Terraform judge’s comments.
“The ruling in the Terra case changes NOTHING about the Ripple ruling that XRP is not a security,’’ he said. “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.’’
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
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