Gensler’s SEC crypto clampdown hits legal speedbump

investmentnews.com:

In a surprising development, a ruling by US District Judge Analisa Torres may significantly impact the regulatory landscape for cryptocurrencies. In a lawsuit filed by the Securities and Exchange Commission (SEC) against Ripple Labs, Judge Torres concluded that a substantial portion of Ripple’s digital tokens, known as XRP, were not subject to securities registration requirements.

The SEC brought a case against Ripple Labs in December 2020, contending that the firm had sold $1.38bn worth of its XRP tokens without meeting mandatory securities registration criteria. However, Judge Torres dismissed part of the SEC’s case, ruling that registration prerequisites did not pertain to approximately $757mn of XRP tokens sold on digital asset exchanges, as retail investors lacked a reasonable expectation of gaining profits from Ripple’s business operations. However, she did deem tokens sold to institutional investors were securities as more sophisticated buyers were likely to understand that the tokens had ‘securities like’ features.

A huge win today – as a matter of law – XRP is not a security. Also a matter of law – sales on exchanges are not securities. Sales by executives are not securities. Other XRP distributions – to developers, to charities, to employees are not securities.

— Stuart Alderoty (@s_alderoty) <a href=«https://twitter.com/s_alderoty/status/1679553612236881921?ref_src=» https:>July 13, 2023

The case hinges on a hotly contested provision in US securities law that prohibits the sale of “investment contracts” without registration as securities with federal authorities. This provision, introduced after the stock promotion scams during the Great Depression, has recently been used by SEC Chair Gary Gensler in his bid