XRP retail holders made biggest winners from Torres' decision, technology policy expert says

Leading international expert on technology policy has ranked retail XRP holders as the leading beneficiaries of Judge Torres' decision.
Rosalyn Clayton calls the holders "victims of regulatory overreach," lauding the judge for "schooling" the SEC.
The ruling absolved Ripple CEO Brad Garlinghouse and board chair Chris Larsen for their XRP sales.

Ripple (XRP) lawyer John E. Deaton has remarked on the opinion of a technology policy expert, Rosalyn Clayton, who pioneered the report on the US Securities and Exchange Commission's (SEC) unconstitutional augmentation of the Howey Test.

Also Read: US HFSC questions Howey Test for crypto regulation advantage over peers like UK, EU, Singapore, and Australia.

XRP holders marked biggest beneficiaries

According to Rosalyn Clayton in the DC Journal, XRP retail holders became the biggest winners from Judge Analisa Torres' decision on July 13, as the technology policy expert explores how the law won against the SEC. According to Clayton, a decisive ruling in favor of the financial regulator would have been indelibly detrimental not just to XRP holders but to every other crypto holder, regardless of the ecosystem.

“The danger of the SEC prevailing hung over XRP holders and any holder, trader or developer of any digital asset yesterday, today and tomorrow. XRP could be replaced by any token or any asset at all. It was a bald-faced regulatory land grab. This is why the biggest winners from… https://t.co/EoCIfkZhjB
— John E Deaton (@JohnEDeaton1) July 27, 2023

As FXStreet reported, Judge Torres broke the XRP vs. SEC case after three long years, determining that selling the Ripple token to institutional investors made the asset a security, but a sale to retail traders did not. This was an accurate interpretation of the Howey Test. Based on this formula, an asset is considered a security when the host (offerer, for lack of a better word) looks at it as an investment of money with a clear intention to derive profits off the efforts of others. This is the case for offering XRP to institutional investors.

An excerpt from the ruling read:

Therefore, having considered the economic reality and totality of circumstances surrounding the Institutional Sales, the court concludes that Ripple's Institutional Sales of XRP constituted the unregistered offer and sale of investment contracts in violation of Section 5 of the Securities Act.

Dr. Clayton holds that in her determination, Judge Torres "schooled the SEC" in the very same law that birthed the agency, leaning into the 1946 Howey Supreme Court decision that demarcates the regulator's mandate. She lauds the federal judge for concentrating her determination on the federal agency's allegations against the payments company and its two senior executives, Brad Garlinghouse and Chris Larsen, CEO and board chair, respectively.

Notably, Clayton acknowledges that XRP holders were the biggest beneficiaries, with full cognizance that the ruling absolved both Garlinghouse and Larsen from possible prosecution for alleged crimes dating back ten years. Like Binance and its CEO Changpeng Zhao, Garlinghouse was also tied to the alleged crime of offering unregistered securities.

The ruling will be crucial in steadying the "SEC's free hand to use the courts to terrorize others…

Ripple price slides north

Meanwhile, Ripple price continues to consolidate north along an ascending trendline while it combats selling pressure from the 50-day Exponential Moving Average at $0.72. The outlook remains bullish for as long as XRP remains above the 100-day EMA at $0.69. A decisive break below the $0.66 support level could pave the way for more losses, potentially writing offa the ground covered on July 13.

XRP/USDT 4-hour chart

On the other hand, buying momentum could resume, possibly as sidelined investors or those who missed the 70% rally find an entry point. The ensuing buying pressure could keep Ripple price above the uptrend line, ultimately leading to a reclamation of the range high, or in a highly bullish case, a score of the $1.00 target.

SEC vs Ripple lawsuit FAQs

Is XRP a security?

It depends on the transaction, according to a court ruling released on July 14:

For institutional investors or over-the-counter sales, XRP is a security.
For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

How does the ruling affect Ripple in its legal battle against the SEC?

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token.

While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.

What are the implications of the ruling for the overall crypto industry?

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at.

Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say.

Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.

Is the SEC stance toward crypto assets likely to change after the ruling?

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation.

While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

Can the court ruling be overturned?

The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.

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