The cryptocurrency XRP rose 23% after a federal judge issued a ruling to its issuer. Ripple Labs Inc.a milder blow than investors feared. On Wednesday, the court announced that the blockchain payments company must pay a $125 million civil penalty for improperly selling its token to institutional investors. The penalty is only 6% of the $2 billion the Securities and Exchange Commission had hoped for.
“This is a victory for Ripple, the industry and the rule of law. The SEC’s backlash against the entire XRP community is over,” said Ripple CEO Brad Garlinghouse. tweeted Wednesday.
The SEC asked for $2 billion, and the court reduced their demand by ~94%, recognizing that they had over-reached. We respect the court’s decision and have the confidence to continue to grow our company.
This is a victory for Ripple, the industry and the rule of law. The SEC…
— Brad Garlinghouse (@bgarlinghouse) 7 August 2024

XRP is traded at $0.62 as of Thursday morning EST. However, the recovery is not yet enough to offset the long-term losses of the seventh-largest token. XRP is down 2% year-to-date, a far cry from the overall market’s performance this year as Bitcoin and Ethereum are up 33% and 46%, respectively.
“A blow for the SEC”
This sued Ripple in 2020and claimed it had violated the law by selling the token without registering it as a security. The regulator had demanded more than $876 million in disgorgement (where a party is required to surrender its profits from illegal actions) and more than $198 million in interest, as well as a civil penalty of $876 million. Ripple strongly contested the SEC’s $2 billion demand, arguing it did not have to pay more than $10 million.
U.S. District Judge Analisa Torres ruled that the case did not involve “allegations of fraud, embezzlement, or other more culpable conduct.” Torres said the SEC failed to prove that Ripple’s failure to register sales of XRP with the regulator caused significant losses to investors. Torres denied her request to disgorge more than $1 billion. Instead, the court based the penalty on a per-violation calculation method. This resulted in a penalty of $125 million, rather than a fine based on Ripple’s profits from the sales in question.
“It’s hard to see this as anything other than a blow to the SEC, given that it only received about 6% of the money it demanded. At the very least, it will hurt the agency’s negotiating position in similar cases,” said Elliott Stein, senior litigation analyst at Bloomberg Intelligence. Assets.
A definitive ruling. The court rejects the SEC’s claim that Ripple acted recklessly and reminds the SEC that there were no allegations of fraud or intentional misconduct in this case and no one was financially harmed. It rejects the SEC’s absurd demand for $2 billion… https://t.co/RbwpBnoXJG
— Stuart Alderoty (@s_alderoty) 7 August 2024
The Howey Test
The crypto world had been following the case closely, viewing it as a major test of the SEC’s authority over the industry. Since there are no laws defining what cryptocurrencies are, their legal status has been a topic of debate in courtrooms across the country, sometimes leading to conflicting conclusions.
The most pressing legal questions were whether a particular token was a security subject to SEC regulation or a commodity. In July, Judge Torres ruled governed that XRP Was a security when it is sold to institutional investors, but a Goods when selling to private investors via stock exchanges.
The outcome of the securities versus commodities debates hinges on the application of the so-called Howey test – the Supreme Court’s 1946 framework for determining whether a transaction qualifies as an investment contract for securities regulation purposes. While Torres applied the test in her analysis, it may take a subsequent Supreme Court decision or an act of Congress to provide full clarity on how the test should be applied to digital assets.
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