Ripple Ruling Rejected by Federal Judge

U.S. District Judge Jed Rakoff,  who is overseeing the Securities and Exchange Commission (SEC) case against Terraform Labs, has rejected an approach used in last month’s ruling in the SEC’s case against Ripple Labs.

This decision stands in contrast to the verdict by U.S. District Judge Analisa Torres in the Ripple case, where a significant distinction was drawn based on how the tokens were sold.

According to the summary of the Ripple verdict, coins sold directly to institutional investors were considered securities, while those sold through secondary market transactions to retail investors were not.

However, this differentiation has now been rejected in the ongoing Terraform Labs case. This now puts the Ripple ruling into question.  

Judge Rakoff is choosing not to differentiate cryptocurrencies based on how they are sold. In other words, he’s stating that the method of sale — whether directly to large, institutional investors or via secondary market transactions to retail investors — shouldn’t affect whether or not those coins are considered securities.

The implications of this legal stance have already begun to ripple through markets. In an immediate reaction, shares of Coinbase (COIN) dropped 3%. The price of XRP has also dipped by 2.9%, but it remains above its intraday low of $0.69.  

What does it mean for Ripple? 

It’s important to note that his decision doesn’t overturn the Ripple ruling, which still stands for now. However, SEC Chair Gensler has openly hinted that the agency is going to appeal the ruling in the Ripple case. 

Rakoff’s ruling provides an alternate interpretation of how cryptocurrencies should be classified, taking into account other properties of the given asset instead of the manner of sale. If Rakoff’s view is found persuasive by the court hearing Gensler’s appeal, it could potentially bolster the SEC’s argument for broader regulation of cryptocurrencies. With that being said, the appeals court could still maintain the original Ripple ruling even in light of Rakoff’s decision.