Analisa Tores, a federal judge in New York, gave the crypto industry a boost in July last year when she awarded Ripple a partial win in its battle with the U.S. Securities and Exchange Commission.

Ripple did violate federal securities laws by selling XRP to institutional clients directly, but not when it put XRP up for sale on exchanges to retail customers, found Judge Torres.

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Crypto industry and SEC hold vastly different views about how federal securities laws should be applied to digital assets. The U.S. judiciary has to decide if Congress’ interpretation of the SEC is correct, or if token issuers or trading platforms have a valid point in saying that the existing laws are outdated and unapplicable.

The issue is more than an academic one. Crypto companies claim that digital assets are decentralized and disintermediated, making it impossible to comply with the rules. Trading platforms that list those assets also face a similar regulatory regime as their traditional finance counterparts. If an asset isn’t a security, then things are much easier for these companies.

This question is more relevant than anywhere else, especially the District Court for the Southern District of New York. The court is currently handling nearly a dozen cryptocurrency matters, including several SEC-filed cases. Judge Torres ruling that Ripple had legally sold and could continue to sell XRP through blind bid/ask on exchanges to retail investors has the potential of creating a precedent for the industry.

Judge Torres wrote that “Programmatic buyers could not have known whether their money payments went to Ripple or any other seller if XRP.” “The majority of people who bought XRP on digital asset exchanges didn’t invest any money in Ripple.” A Programmatic Buyer was in the same position as a Secondary Market Buyer who didn’t know what or to whom it was paying.

Precedent? It depends

It was a shocking decision that sent shockwaves throughout the industry. However, it raised questions as to what precedent it had set.

Grant Gulovsen said that the ruling was “clearly very beneficial” for crypto exchanges. The extent to which this ruling will benefit crypto projects and companies “really depends.”

The SEC has already withdrawn charges against Ripple executives Brad Garlinghouse and Chris Larsen, presumably to expedite the appeal. The SEC has already dropped charges against Ripple executives Brad Garlinghouse, and Chris Larsen. This was done to expedite the appeal.

Gulovsen stated that “if the ruling is accepted by the court, it could provide a path for projects to raise money.” The ruling of Judge Torres may also be a rare case. Judge Jed Rakoff of the same court explicitly rejected Judge Torres’ analysis in his own summary judgment ruling in the SEC’s case against Terraform Labs. Of course, this ruling is unique, just as the Ripple decision was unique.

It may take some time to get an appeals court decision. Judge Torres has set up a schedule of additional processes through April 2024. The SEC cannot appeal until this case is resolved.

It will at least provide ammunition to other crypto companies who are facing similar legal issues.

Marc Hochstein is the editor.