Court Rejects Judge Torres’ XRP Sales Distinction; Says Ripple CTO

The recent ruling in the TerraForm Labs’ case, in which a federal judge rejected Judge Torres’ ruling on Ripple’s XRP sales, has been the subject of considerable discussion.

Notable figures in the XRP community, including Ripple’s CTO, David Schwartz, have weighed in on the discussion. It is important to note that Judge Torres ruled that Ripple’s sales to institutional investors constituted securities, leaving out those sold on electronic exchanges as non-securities.

Ripple (XRP) CTO David Schwartz’ Take on Judge’s Decision

However, Ripple Chief Technology Officer (CTO) David Schwartz disputes the TerraForm Lab case assertion in a tweet. Schwartz asserted that the ruling was based on an “unusual view of the scheme” and not on any understanding of how cryptocurrencies operate.

This ruling seems to be based no some very unsual properties of this particular scheme and not the way cryptocurrencies generally work. None of the below, the crux of the reasoning here, applies to typical cryptocurrencies as far as I can tell. pic.twitter.com/P41jiwlZaG

— David “JoelKatz” Schwartz (@JoelKatz) August 1, 2023

He provided an extract from the ruling in which he asserted that none of the findings made by the judge applied to standard crypto assets. Meanwhile, Schwartz’s analysis has sparked responses from crypto advocates, such as Crypto-Law-US founder John Deaton. 

Deaton commended Ripple’s Chief Technology Officer for his insightful review of the ruling, noting that non-lawyers typically provide some of the most insightful legal analysis he has encountered.

As I’ve said before, some of the best legal analysis I’ve read come from non-lawyers. Outstanding review. https://t.co/XJ9v1yoTIM

— John E Deaton (@JohnEDeaton1) August 1, 2023

The Categories of Terra Ruling

Judge Rakoff’s TerraForm Labs decision can be interpreted in two different ways, according to Ripple’s CTO. In the worst-case scenario, Judge Rakoff could mean he would not follow Judge Torres’ decision because he had applied additional tests not part of the Howey test. 

But in the best-case scenario, Ripple’s (XRP) CTO said that Judge Rakoff might have rejected the argument that he should follow Judge Torres’ because it indirectly related to facts that did not apply to Terraform Labs. 

The Ripple CTO also suggested that Judge Rakoff may have meant that he did not distinguish between the secondary market sales and the sales to institutional investors. 

“So if the court did so in Ripple, it was either wrong or did so because the facts in that particular case justified that distinction and the court thinks the facts, in this case, don’t justify such a distinction,” Schwartz added.

Meanwhile, Schwartz was one of many Ripple executives to do so. According to a press release issued by Ripple today, the company’s Chief Legal Officer, Stuart Alderotry, has clarified the implications of TerraForm Labs’ recent decision.

Alderoty has stated that Judge Rakoff’s ruling does not alter the facts of the Ripple case, including the fact that XRP does not constitute a security.

He asserted that the case of TerraForm Labs is still in its infancy. As a result, the judge in charge of the case will likely uphold the entirety of the allegations made by the SEC. Alderoty further asserted that Judge Torres’ ruling in the Ripple lawsuit was issued after a comprehensive factual record had been produced in court over two years, according to a tweet he shared on his Twitter page.

Let me be clear about some confusion going around – the ruling in the Terra case changes NOTHING about the Ripple ruling that XRP is not a security. Also… https://t.co/PhaVix7HM4

— Stuart Alderoty (@s_alderoty) July 31, 2023

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