Ripple’s recent court victory in California has started a renewed debate on whether XRP should be classified as a security. While the judge dismissed most claims against Ripple, she also suggested that XRP might be a security, highlighting the ongoing uncertainty in U.S. crypto regulation.
Read CRYPTONEWSLAND onOn June 20, Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California dismissed most of a class action lawsuit against Ripple. The lawsuit claimed Ripple’s XRP token was sold as an unregistered security.
Judge Hamilton allowed only one state law claim against Ripple and its CEO, Brad Garlinghouse, to proceed to trial, significantly reducing potential financial liabilities for the company.
However, Judge Hamilton’s ruling also hinted that XRP could be considered a security, diverging from a prior decision by Judge Analisa Torres of New York’s Southern District.
In a case brought by the SEC last year, Judge Torres ruled that XRP was not a security when sold to retail investors, although it might be considered a security when sold to institutional investors. This conflicting interpretation among district judges highlights the absence of clear regulatory guidelines for cryptocurrencies in the U.S.
Crypto lawyers emphasize that these conflicting rulings show a broader issue: the lack of consistent legal standards for digital assets. Joseph Castelluccio, a partner at Mayer Brown, noted that the favorable aspects of Hamilton’s ruling for Ripple were based on statute of limitations grounds rather than a definitive stance on XRP’s classification.
He pointed out that Hamilton’s decision to dismiss the class action claims was unrelated to whether XRP is a security. Judge Hamilton applied the Howey Test, a critical legal standard for determining whether an asset is a security, to XRP.
She found that XRP might meet the test’s criteria, potentially leading investors to expect profits from the efforts of others. This analysis further complicates the regulatory landscape for Ripple and other cryptocurrency projects.
The differing court decisions illustrate that district courts are not bound to follow each other’s rulings. This legal variability continues to create uncertainty for the crypto industry, which awaits clearer guidance from higher courts or legislative action. Until such clarity is achieved, companies like Ripple face ongoing legal challenges and regulatory ambiguity.
Santa Clara, USA, 1st July 2024, Chainwire
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