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Critical Decision in Ripple Case: Is XRP a Commodity?

Yigit Taha OZTURK — Fri, 14 Mar 2025 08:00:14 +0000

In a major development for the cryptocurrency industry, Ripple Labs has secured a significant legal victory. U.S. District Judge Analisa Torres ruled that XRP is not considered a security when sold on secondary markets. The ruling comes as part of the ongoing lawsuit brought by the U.S. Securities and Exchange Commission (SEC), which alleged that Ripple conducted an unregistered securities offering by selling its XRP tokens.

The decision carries broad implications for the crypto sector and has the potential to set a precedent for future token classification lawsuits.

Institutional vs. Programmatic Sales: Court’s Distinction

The court made a clear distinction between institutional sales and programmatic (secondary market) sales of XRP. Judge Torres ruled that Ripple’s direct sales of XRP to institutional investors, totaling $728 million, did constitute an unregistered securities offering under U.S. law. However, the programmatic sales, which include transactions made by retail investors on crypto exchanges, were not deemed securities transactions.

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The court found that most retail buyers of XRP on exchanges were not investing directly in Ripple and were not expecting profits based on Ripple’s efforts, failing to meet the criteria for an investment contract under the Howey Test.

XRP Token Is Not a Security Itself

Judge Torres emphasized that XRP itself is not a security. She stated, “As a digital token, XRP is not in and of itself a ‘contract, transaction, or scheme’ that embodies the requirements of an investment contract under the Howey test.”

The court instead focused on the specific transactions and schemes involving the sale and distribution of XRP, rather than the token as an asset.

Will the SEC Appeal?

Although Ripple has won a crucial decision, the legal battle may not be over. The SEC is expected to appeal the ruling. If an appeal is filed, the case would move to the Second Circuit Court of Appeals, where both parties would present arguments and evidence for further review.

An appeal could result in either a reversal or further clarification of the legal standards applied to digital assets. If conflicting rulings emerge from different appellate courts, the case could ultimately be brought before the United States Supreme Court.

Impact on the Crypto Industry

This ruling is seen as positive news for the broader crypto community, particularly as the SEC has recently taken legal action against major exchanges like Coinbase and Binance, partly for allegedly offering unregistered securities. Legal experts suggest that the Ripple ruling could weaken some of the SEC’s arguments in these cases.

The decision also provides much-needed clarity regarding the regulatory framework surrounding digital assets, potentially offering relief to the crypto industry from mounting regulatory pressure. Analysts believe this ruling could boost investor confidence and shape future legal interpretations of how digital assets are classified.

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Court Reviews SEC’s Rejection of Coinbase’s Rulemaking Request

Tanju Akbıyık — Tue, 24 Sep 2024 16:30:14 +0000

In 2022, Coinbase requested that the U.S. Securities and Exchange Commission (SEC) establish clear regulations for cryptocurrency, including guidelines on which digital assets qualify as securities. The SEC denied this request in late 2023, leading Coinbase to appeal to the U.S. Court of Appeals for the Third Circuit to compel the regulator to provide a more substantive response.

On September 23, 2023, the court’s panel of judges questioned the SEC’s minimal explanation for rejecting Coinbase’s petition, with Judge Thomas Ambro suggesting the denial was nearly “vacuous.” Ambro noted that while the SEC doesn’t need to offer an exhaustive rationale, it must provide some meaningful reasoning for its decision.

Coinbase’s legal team argued that the SEC’s two-page denial was insufficient, especially in light of the regulator’s continuous enforcement actions against crypto companies. Eugene Scalia, Coinbase’s counsel, stated that the SEC’s rejection lacked any justification for why current rules are inadequate for the digital asset industry.

Coinbase’s chief legal officer, Paul Grewal, echoed these frustrations, calling out the SEC for an arbitrary enforcement campaign while failing to provide clear guidance for the crypto industry. Grewal criticized the SEC’s refusal to offer a reasonable explanation for its brief denial.

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The judges also expressed concern about how the crypto industry can comply with outdated rules that don’t fit the decentralized nature of digital assets. Judge Stephanos Bibas remarked that while the SEC has been actively enforcing actions against crypto firms, it has neglected to offer clear regulatory guidance. He suggested that the SEC’s repeated actions indicate interest in crypto but without providing the necessary higher-level regulations.

In its defense, the SEC cited ongoing efforts and other priorities as the reasons for denying Coinbase’s request for rulemaking at this time. However, the agency has faced significant pushback for its approach, particularly after charging Coinbase in June 2023 with operating as an unregistered securities exchange, broker, and clearing agency.

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Coinbase and SEC Case Come Close to End

Tanju Akbıyık — Sat, 13 Jul 2024 11:00:46 +0000

Coinbase continues its efforts to subpoena Gary Gensler despite recent backtracking in the ongoing Coinbase and SEC case, seeking transparency in the regulatory process.

Coinbase and SEC Case

The leading crypto exchange has taken a significant step forward in its quest to subpoena SEC Chairman Gary Gensler. Despite recent difficulties, the crypto exchange is requesting access to Gensler’s personal devices and emails, hoping to uncover critical communications about the crypto market.

For context, at a recent hearing in which the SEC attempted to dismiss the subpoena against Gary Gensler, Judge Katherine Polk Failla expressed dissatisfaction with the exchange’s efforts. Commenting on the development, Judge Failla said he was “surprised” and “not in a good way”.

Amid the ongoing Coinbase and SEC lawsuit, Elizabeth Goody has joined the SEC’s legal team against the exchange. In the latest filing with the court, Elizabeth Goody applied to appear in court as counsel to the US SEC, further intensifying the market debate.

Meanwhile, it comes at a time when the SEC has recently closed its investigations into several crypto firms, including Consensys, Paxos, and Hiro, without recommending sanctions. This move has brought into question the SEC’s stance on current crypto regulations in the crypto market.

However, Coinbase Director of Legal Affairs Paul Grewal commented on these latest developments, expressing hope that the SEC’s backtracking could be a sign that they are willing to work in good faith with the crypto industry. Grewal said in his last X post:

“I hope this apparent retraction is a sign that the SEC will begin to operate in good faith, rather than simply churning out Wells notices and participating in the industry as it claims.”

Meanwhile, the ongoing Coinbase lawsuit highlights a broader fight for regulatory clarity in the crypto industry. The exchange’s persistent efforts to subpoena Gensler reflect the company’s commitment to ensuring transparency and fairness in the regulatory process.

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Coinbase Accuses US SEC and FDIC of Unfairly Blocking Document Requests

Tanju Akbıyık — Thu, 27 Jun 2024 22:30:16 +0000

Coinbase is heading back to court against U.S. regulators and wrangling over Freedom of Information Act (FOIA) requests. A US crypto exchange is trying to obtain documents showing how the initial decisions were made at the Securities and Exchange Commission (SEC) on which digital tokens would be considered securities.

The company’s subcontractor, History Associates, is also suing the Federal Deposit Insurance Corporation (FDIC) over letters sent to financial firms urging them to halt crypto activities.

History Associates Inc., on behalf of Coinbase, stated that documents that should have been accessible under FOIA were wrongfully denied by the SEC and FDIC. Requesting written communications from the SEC regarding three closed cases in which the agency considers digital assets as securities, Coinbase is asking the FDIC for “cease and desist letters” from the agency’s inspector advising financial firms to cease their crypto activities.

Coinbase‘s legal challenge comes on the heels of the SEC saying it has closed its review of “Ethereum 2.0” as a potential security, so it may be harder for the regulatory agency to deny document requests.

The exchange is also seeking documents related to two previously resolved digital asset cases. One involves Zachary Coburn, who founded the EtherDelta platform, which the SEC ruled were “digital asset securities” in 2018, and the other involves Enigma MPC, which sold $45 million worth of ENG tokens in 2017, which the SEC ruled were unregistered securities.

“We requested documents related to closed investigations to shed light on how the SEC views its new, sweeping (and illegal) authority,” Coinbase Chief Legal Officer Paul Grewal said in a statement on X (formerly Twitter). “One of these investigations focused on ETH, which only recently closed and the SEC publicly declared not a security in 2018. Other investigations have been closed for years. But the SEC blocked our requests.” The SEC denied requests for information about long-closed cases and the more recent ETH matter under FOIA “exception 7A” – protection from uncovering matters that could undermine law enforcement efforts. Spokespeople for the SEC and FDIC declined to comment on the cases.

History Associates’ lawsuit against the FDIC argues that letters to firms asking them to cease digital asset business are “part of an effort by the FDIC and other financial regulators to pressure financial institutions to cut off digital asset firms from the banking system.”

These lawsuits join other legal clashes between Coinbase and U.S. financial regulators. The current case with the SEC over allegations that the agency operates an illegal exchange that trades unregistered securities is one of the most high-profile court battles that could determine the crypto industry’s future in the United States. Coinbase also sued the SEC, seeking a court order that would force the regulator to issue guidance defining digital asset securities.

Coinbase has previously funded lawsuits against the US government. In 2022, it backed a group of investors and developers — including some of its employees — who sued the U.S. Treasury Department over sanctions against the Tornado Cash crypto mixer. That lawsuit failed in federal court, but the plaintiffs appealed.

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