Howey Test Archives - Coin Engineer

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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The post Critical Decision in Ripple Case: Is XRP a Commodity? appeared first on Coin Engineer.

SEC Appeals in Ripple Case!

Yigit Taha OZTURK — Thu, 16 Jan 2025 10:30:17 +0000

The U.S. Securities and Exchange Commission (SEC) has appealed a New York District Court ruling that XRP sold to retail investors is not an unregistered security.

In its January 15 filing to the Second Circuit Appeals Court, the SEC requested the overturn of the decision and for XRP sales to retail investors to be classified as unregistered securities. The SEC also argued that XRP distributed as employee compensation and in business deals should be deemed securities.

Allegations Against Ripple

The SEC claimed that Ripple’s promotional efforts made XRP an investment contract, fulfilling the requirements of the Howey Test, which defines securities. However, in July 2023, Judge Analisa Torres ruled that XRP was a security when sold to institutions but not when sold to retail investors through exchanges, as these investors didn’t know the seller.

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Ripple CEO Brad Garlinghouse criticized the appeal, saying, “The SEC is doing the same thing over and over and expecting different results.” Ripple’s Chief Legal Officer Stuart Alderoty also dismissed the SEC’s arguments as “a rehash of already failed claims.”

XRP and Market Reaction

The appeals process could take months, with Ripple submitting counter-arguments and the court potentially hearing oral arguments. Ripple has also cross-appealed parts of the case it lost, including a $125 million civil penalty ruling.

Despite the SEC’s filing, XRP surged by 10% in the past 24 hours amid broader crypto market gains.

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Kraken’s Appeal in SEC Lawsuit Rejected!

Yigit Taha OZTURK — Tue, 19 Nov 2024 13:00:03 +0000

A federal judge in California has denied Kraken‘s motion to appeal a decision in its lawsuit with the SEC. Judge William Orrick stated in his November 18 ruling that Kraken’s appeal would only “delay resolution” of the case.

Judge Orrick found that the SEC had sufficiently alleged that crypto transactions on Kraken constitute investment contracts under the Howey test. However, he emphasized that discovery would be needed to confirm whether these transactions truly meet the test’s criteria.

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Kraken argued that investment contracts require specific contractual obligations, but Orrick dismissed this claim, noting that courts have already ruled against this interpretation. He stated, “Several courts have addressed these issues and disagreed with Kraken’s position.”

SEC vs. Kraken: Legal Battle

The SEC previously moved to dismiss Kraken’s defenses, arguing that the laws defining investment contracts are clear and that Kraken had adequate notice. The agency also expressed concerns that Kraken might pursue excessive discovery as part of its due process defense.

Kraken, on the other hand, claimed that the Howey test leaves room for differing opinions and sought to elevate these questions to a higher court. However, this request was rejected.

This decision could serve as a pivotal moment for regulatory clarity in the cryptocurrency sector. The outcome of the SEC vs. Kraken case may influence how other crypto platforms operate within U.S. securities laws, potentially setting a precedent.

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