XRP is both a security and not a security in Federal Court Ruling

In a highly anticipated ruling that may have wide-ranging implications, a federal district court for the southern district of New York simultaneously held on July 13, 2023 that cryptocurrency XRP, the digital token developed and issued by Ripple Labs, was a security in Ripple Lab’s sales to institutional investors and not a security in sales to retail investors on crypto exchanges. This seemingly confusing outcome makes it far more likely that Congress will ultimately determine if it will regulate cryptocurrency as a security or a commodity.

In Securities Exchange Commission v. Ripple Labs, Inc, 2023 WL 4507900, --- F. Supp. 3d ---- (S.D. N.Y. 2023), district judge Analisa Torres examined whether the XRP token was an “investment contract” pursuant to the Howey[1] test, specifically whether it was “a contract, transaction[,] or scheme whereby a person [(1)] invests his money [(2)] in a common enterprise and [(3)] is led to expect profits solely from the efforts of the promoter or a third party.”[2] Finding first that the XRP token was not itself inherently an investment contract, but could serve as the subject of contract, transaction or scheme that is an investment contract, and second that the first two elements of Howey were satisfied, she held regarding the third prong that (a) through direct messaging in privity with Ripple Labs, institutional buyers would have purchased the XRP token with the expectation that they would derive profits from Ripple Labs’ efforts, but (b) retail investors that purchased the XRP token on crypto exchanges in “blind bid/ask transactions,” did not derive the expectation of profits from Ripple’s efforts rather than general cryptocurrency market trends.

Even though you may not transact in cryptocurrency, you may want to buy or sell a tangible or intangible asset that could serve as the subject of a contract, transaction, or scheme considered to be an investment contract under Howey. You are not alone, and before proceeding, you may wish to consult with one of the experienced attorneys at Cosgrove Law Group, LLC. Call us at 314-563-2490.


[1] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[2] Id., at 298-99.