Further Legal Battles as XRP Sales Deemed Securities in Transactions with Institutional Investors, Ripple CLO Forecasts

Ripple's Chief Legal Officer (CLO) stated that further court proceedings are expected. This comes as the sales of Ripple native cryptocurrency, XRP, to institutional investors are now classified as securities.

The characterization of XRP sales carries potential implications for Ripple's business model and the future of the cryptocurrency industry as a whole.

Judge Torres Gives Final Ruling on SEC VS Ripple Legal Battle

After nearly three years of legal conflict, Judge Analisa Torres, who oversaw the SEC v. Ripple lawsuit, delivered the highly anticipated verdict.The ruling ends the protracted legal dispute between the Securities and Exchange Commission (SEC) and Ripple.

The judge's decision is perceived as a mixed outcome, with both sides experiencing victories and setbacks in different aspects of the case.Judge Torres determined that XRP, as a standalone entity, does not fall under the definition of security.

However, she concluded that Ripple's sales of XRP to institutional investors violated security regulations due to being an unregistered security offering.

Ripple's CLO, Stuart Alderoty, affirmed on July 13, 2023, that the court classified the sales of XRP to institutional investors as an investment contract.

The only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court's order.

- Stuart Alderoty (@s_alderoty) July 13, 2023

In the past, institutional investors purchased XRP directly from Ripple, amounting to $728.9 million.Notably, this figure is lower than the initial $1.3 billion stated in the Securities and Exchange Commission's (SEC) original complaint.

Ripple's XRP Sales to Institutional Investors Ruled Unregistered Securities

As per the court's decision, Ripple's sales of XRP to institutional investors were classified as unregistered securities based on the condition that these investors agreed to a predetermined period of locking up their coins.

In this scenario, the XRP coins can only be considered as a speculative investment during the lock-up period and nothing else.

Moreover, the court ruling emphasized the presence of investment contracts indicating that these investors acquired XRP intending to resell it.

Additionally, the court determined that these institutional clients purchased XRP to earn profits based on Ripple's efforts.The ruling concludes that Ripple's sales to institutional clients meet all the criteria outlined in the Howey test.

The Howey test state that:

An investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. Whether a particular digital asset at the time of its offer or sale satisfies the Howey test depends on the specific facts and circumstances.

Ripple's Chief Legal Officer Foresees Further Court Proceedings Regarding the Matter

Following the outcome, Ripple's Chief Legal Officer (CLO) indicated that there would be future court proceedings regarding the matter.

In his words - the only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court's order.

As anticipated, the comments made by Alderoty garnered reactions from prominent figures in the cryptocurrency industry, including Ripple CEO Brad Garlinghouse.

In a recent tweet, Garlinghouse referred to Alderoty's tweet as a summary of the judge's ruling.The Ripple CEO expressed his optimism that Alderoty's analysis would help alleviate any confusion surrounding the ruling.

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