Split Decision on XRP as a Security
As Judge Torres correctly found, “the subject of a contract, transaction, or scheme is not necessarily a security on its face,” but still may be a “security.” As such, many investors who adamantly believe that cryptocurrencies are commodities (and not securities), will be surprised to learn that various assets have been the subject of an “investment contract.” For instance, the seminal case of SEC v. Howey found the existence of an “investment contract” (and thus a “security”) despite the subject of the investment being orange groves.
Judge Torres further cited various other cases to bolster this point including those involving condominiums, whiskey, payphones, and beavers. Therefore, Judge Torres found that “[e]ven if XRP exhibits certain characteristics of a commodity or a currency, it may nonetheless be offered or sold as an investment contract.”
Ultimately, Judge Torres applied SEC v. Howey and found that Ripple’s “institutional sales” constituted sales of “investment contracts” and thus “securities,” while the “programmatic sales” were not.