XRP Deemed Non-Security in SEC Case: Breakdown from STORM Partner's Head of Legal

Ripple has secured a partial victory in the United States District Court in the Southern District of New York. Our Head of Legal, Nicola Massalla, has been following the case and has collated a summary of the court’s decision.?

1 - The court held that Ripple’s institutional sales of XRP directly to sophisticated buyers under written contracts constituted unregistered offers and sales of investment contracts in violation of Section 5. These sales satisfied the three prongs of the Howey test.

2 - Ripple’s programmatic sales of XRP on digital asset exchanges did not constitute offers and sales of investment contracts because the buyers could not have reasonably expected profits from Ripple’s efforts when engaging in these blind transactions.

3 - Ripple’s other distributions of XRP as compensation or incentives did not involve an investment of money and thus did not satisfy Howey’s first prong.

4 - The individual sales of XRP by Larsen and Garlinghouse on digital asset exchanges were no offers or sales of investment contracts, given the blind nature of these transactions.

5 - The court rejected the Defendants’ fair notice and vague defences regarding the institutional sales, finding that the Howey test provides sufficient clarity.

6 - The court denied the SEC's motion for summary judgment on the aiding and abetting claim against Larsen and Garlinghouse, finding disputed issues of material fact as to their knowledge and Larsen’s assistance.

In summary, the court both granted and denied in part both parties’ motions for summary judgment. The case will proceed to trial on specific remaining issues. However, this decision can be considered a victory for Ripple as the court leans towards not considering XRP a security.