On July 13, 2023, United States District Court Judge Analisa Torres ruled that Ripple's XRP (XRP) token should not be considered a value when sold on retail digital asset exchanges.
Stuart Alderoty, Ripple's legal director, told Cointelegraph that last week's ruling makes clear that the US Securities and Exchange Commission (SEC) theory that a token can be an investment contract and, therefore, a value, no longer has support in the law.
He said of the ruling: โThat is not only a great victory for Ripple, but it is a victory for all cryptocurrencies in the United States. The SEC can no longer promote his track record in crypto, which up until now was mostly deals with players who didn't have the resources to defend themselves."
While this may be, New York representative Ritchie Torres told Cointelegraph that Ripple's decision reveals a cruel irony in securities law. He said:
โIt protects institutional investors and leaves retail clients exposed, although the latter arguably requires more protection than the former. To me, the lack of protection for retail investors underscores the fierce urgency of passing a market structure bill to protect the average American consumer."
Torres elaborated on this comment, commenting on his plan to help secure approval of a crypto market structure billand his support for blockchain technology and cryptocurrency innovation.
Crypto regulation by app had a terrible day in court.
In light of the landmark SDNY decision in the Ripple case, @SECGov must reassess its reckless regulatory assault on the crypto industry.
My letter to President Gensler: pic.twitter.com/Mrk63N4KhH
โ Rep Ritchie Torres (@RepRitchie) July 18, 2023
Cointelegraph: Can you explain the meaning behind the recent XRP court ruling?
Towers: The Southern District of New York's decision makes two critical distinctions. First, it makes a distinction between securities and assets that are parties to investment contracts, which qualify as securities under the Howey test. The decision establishes what I describe as the "Torres Rule," which holds that digital assets are not themselves securities that can be sold as investment contracts that qualify as securities under the Howey test.
Second, it distinguishes between institutional buyers and retail buyers. If you are an institutional buyer purchasing a crypto token directly from an issuer or promoter, then that transaction is a security offering. But, if you are a retail customer buying a crypto token on an exchange, that transaction is different from an investment contract and falls outside the scope of securities law.
CONNECTICUT: He mentioned that the lack of protection for retail investors underscores the fierce urgency of passing a market structure bill to protect the average American consumer. Please explain.
RT: The United States House of Representatives Committee on Financial Services is currently considering two bills. One is about stablecoinsand the other is about the structure of the market. The combination of the Ripple decision and the Market Structure Bill would create a rigorous but workable framework for regulating digital assets.
Ripple's decision protects the crypto industry from arbitrary enforcement action and Gary Gensler's regulation-by-enforcement practice, but a crypto market structure bill would protect retail investors from bona fide bad actors.
CT: What are you doing to help ensure passage of a crypto market structure bill?
RT: I have been actively negotiating with Republicans in the House Financial Services Committee to get the crypto market structure bill right. There is no substitute for legislation, and Gary Gensler's regulatory strategy has put retail customers at risk.
However, I believe that both Congress and the SEC should strive to be neutral on the merits regarding cryptocurrencies. The role of legislators is not to determine the utility of blockchain technology to society. Rather, our role is to create a framework to regulate digital assets and protect investors and consumers. That is our mandate, regardless of personal feelings about the usefulness of cryptocurrencies.
CT: What are your thoughts on cryptocurrencies and blockchain technology?
RT: Personally, I believe that blockchain technology and cryptocurrencies have the potential to create a better, cheaper, and faster payment system, while also enabling a new layer of the Internet commonly known as Web3. But for cryptocurrency and blockchain to have a chance of success, a regulatory framework and clarity are required. Clarity is the cornerstone of compliance.
CT: Final thoughts?
RT: Even after the Ripple case, the status quo is still unacceptable because retail customers are exposed. Therefore, I have two objectives. The first goal is to protect crypto innovators from regulatory enforcement, which Ripple's decision achieves. The second, and most important, goal is to protect retail customers. That is where the need to legislate now comes into play.
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