XRP Stumbles as Court Rejects Ripple's Legal Win

Last Updated August 2nd 2023
3 Min Read

Key Takeaways -

  • The recent ruling by US District Judge Jed Rakoff challenges the initial victory claimed by Ripple, rejecting the distinction between public and institutional sales of XRP and strengthening the SEC's case against Terraform Labs and Do Kwon.
  • Ripple's CTO, David Schwartz, expressed reservations about the court's ruling, noting that it seemed to rely on the unique properties of Terraform Labs' scheme rather than the general characteristics of cryptocurrencies.
  • The court's ruling has had a significant impact on the cryptocurrency market, particularly causing the price of XRP to fall below the $0.70 mark for the first time since July 13, 2023.

A recent turn of events has stirred up the world of cryptocurrency. A US District Judge has questioned a previous ruling in a case involving Ripple, a company that uses the digital currency XRP.

A New Ruling Challenges the Old

Judge Analisa Torres had previously stated that certain sales of XRP weren't subject to securities laws. However, District Judge Jed Rakoff has now challenged this. His decision allows the Securities and Exchange Commission (SEC), a government agency that oversees financial markets, to continue its case against a company called Terraform Labs and its founder, Do Kwon.

Rakoff disagreed with the previous ruling that distinguished between sales to the public and sales to institutions.

The Ripple Effect

This new development was brought to light by John Reed Stark, a former SEC attorney. He shared Judge Rakoff's decision on Twitter.

Terraform Labs and Do Kwon had asked the judge to dismiss the SEC's case against them. They argued that the digital assets they were dealing with weren't securities, so the SEC shouldn't be involved. They based their argument on the ruling in the Ripple case.

But the SEC disagreed. They argued against using Judge Torres's reasoning from the Ripple case and said they plan to appeal the decision.

The SEC's Case Continues

Judge Rakoff decided not to dismiss the SEC's case against Terraform Labs. He said the SEC has the right to investigate whether Terraform Labs broke securities laws with their digital assets:

  • TerraUSD (UST)
  • Anchor Protocol
  • LUNA

A Clash of Judgements

Judge Rakoff also disagreed with the way Judge Torres handled the Ripple case. He criticized the distinction between public and institutional sales. According to him, all buyers could reasonably expect to profit from their purchase, regardless of where their coins came from.

Rakoff also challenged the Major Questions Doctrine, a rule that prevents regulatory agencies from overstepping their boundaries. Some cryptocurrency companies, like Coinbase, have used this argument against the SEC. But Rakoff dismissed this, saying that the cryptocurrency industry isn't as significant as other regulated industries.

Ripple's CTO Weighs In

David Schwartz, Ripple's Chief Technology Officer, expressed concerns about the court's ruling. He noted that the decision seemed to be based on the specific characteristics of Terraform Labs' operations, not on the general nature of cryptocurrencies.

Schwartz also pointed out that the court's rejection of the Ripple case wasn't just because it disagreed with the reasoning. Instead, it seemed to be based on the differences between the Ripple and Terraform Labs cases.

XRP's Value Drops

XRP's Value Drops

In light of these developments, the value of XRP has dropped below $0.70. This is the first time it's been this low since July 13. At the time of writing, XRP is trading at $0.6924, a 2% decrease over the past 24 hours.

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