A judge determines that Ripple’s XRP token qualified as a security at certain times

Ripple’s XRP token was classified as an investment contract by a judge ruling today, in the case brought by the Securities and Exchange Commission (SEC) to determine whether tokens are securities. This ruling marks a significant development in the ongoing case.

Judge Analisa Torres ruled that Ripple’s sales of XRP to institutional investors, amounting to $728.9 million, were unregistered securities offerings. However, programmatic sales and sales by Ripple’s CEOs were exempt. The remaining claims in the case will be decided in a jury trial.

In the SEC’s suit, it was alleged that Ripple failed to provide investors with the necessary information to assess investment risks. Judge Torres referenced the Howey test, derived from a 1946 Supreme Court case, which defines securities as “an investment in a common enterprise with the expectation of profit solely through the efforts of others.” Some members of the crypto community argue that this test is outdated.

There have been ongoing debates regarding whether cryptocurrencies should be considered securities. XRP investors are positive about this ruling, as the token’s price increased by almost 30 percent in response. Token sales on exchanges are not classified as unregistered securities offerings.

Ripple had proposed an interpretation of the Howey test in court filings, requiring “essential ingredients” for a security classification. This interpretation included a contract that grants investor rights, post-sale obligations on the investment promoter, and a right to share in profits. Judge Torres dismissed this interpretation, stating that it would exceed the Supreme Court’s requirements in the Howey test. She wrote, “The Court sees no reason to do so.”

Judge Torres also emphasized that no previous cases have supported this idea, and throughout the decades of securities law jurisprudence after the Howey case, courts have found the existence of an investment contract even without the “essential ingredients” proposed by Ripple.

According to Judge Torres, the programmatic sales on exchanges were more similar to secondary trading rather than an initial offering. She wrote, “An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money.”

You can read the full filing here: