Ripple Chief legal officer Stuart Alderoty has poured cold water on notions that the ruling in the Securities and Exchange Commission’s (SEC) case against Terraform Labs would impact XRP’s status.
“The ruling in the Terra case changes NOTHING about the Ripple ruling that XRP is not a security.”
Judge Rakoff’s ruling
On July 31, Judge Jed Rakoff’s allowed the SEC to proceed in its case against Terra after disagreeing with Judge Analisa Torres’s ruling on XRP’s security status when sold to the public via secondary markets.
In her ruling, Judge Torres argued that the programmatic sales of XRP did not constitute a securities offering. However, the Judge also ruled that XRP sales to institutional buyers did meet that threshold.
In contrast, Judge Rakoff opined that the Howey test does not make distinctions between buyers of an asset.
Rakoff 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.”
While the XRP ruling did not consider sales to retail users as an investment contract, Rakoff held that the SEC allegations against TFL and Do Kwon applied to everyone that purchased the LUNA/UST tokens.
“Secondary-market purchasers had every bit as good a reason to believe that the defendants would take their capital contributions and use it to generate profits on their behalf,” he said.
Crypto stakeholders hold divergent views.
Following the ruling, several community members expressed worries that the order might negatively impact XRP’s status in the long term.
However, Ripple’s CLO holds a contrary view, arguing that Judge Rakoff misread the reasoning behind the XRP decision.
Aldeorty noted that the SEC-Terra case was starting, and Judge Rakoff would likely presume everything the financial watchdog alleges as accurate. He added that the XRP’s decision came after “a full factual record (developed over 2+ years) was presented to the Court.”
Similarly, crypto attorney John Deaton corroborated Aldeorty’s view, saying while Judge Torres applied the Howey factors to facts at her summary judgment, Judge Rakoff was only ruling on a Motion to Dismiss.
Crypto skeptics like the former SEC official John Reed Stark claimed that Judge Rakoff’s ruling proved that Ripple’s decision was already in big trouble.
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