Ripple's post-2018 XRP sales to institutional buyers don't violate SEC conditions

Ripple’s legal standoff with the US Securities and Exchange Commission (SEC) has taken a significant turn following new legal interpretations of a recent court injunction. 

According to Fred Rispoli, an attorney closely monitoring the case, the court’s temporary restraining order pertains specifically to institutional XRP sales Ripple made before 2018. That means the company’s current and future sales to institutions are still legal, so long as they do not mirror the structure of those early transactions.

The SEC asserts that Ripple’s $728 million XRP to institutional investors from 2013 to 2018 amounted to illegal sales of unregistered securities under US law. 

The judge ruled in favor of Ripple’s argument that it did not conduct securities transactions when it sold the digital asset XRP to the public through so-called crypto exchanges. However, regarding institutional sales during the company’s early years, the court agreed with the SEC that they were unregistered securities offerings.

Farrell and Morgan weigh in on Ripple’s regulatory future

James Farrell, a legal commentator in cryptocurrency who also examined the case, agreed with Rispoli’s interpretation. He stressed that the injunction is not an all-out prohibition of institutional sales. Instead, it enjoins Ripple from breaking Section 5 of the Securities Act, which involves the sale of unregistered securities.

Farrell said Ripple could still theoretically sell XRP to institutions, provided the transactions go through the proper regulatory channels. He explained that one option is for the company to request a “no-action letter” from the SEC, which would formally assure that the described activity would not trigger enforcement action.

Farrell’s take also dovetails with that of former SEC lawyer Marc Fagel. The advocate has said he believes the SEC will eventually abandon its appeal—a decision that would finally end the four-year legal showdown. But he added that the appeal is still live, so the case could still be considered “ongoing”.

Another prominent lawyer, Bill Morgan, added a new wrinkle to the debate, writing that a settlement can only become a done deal if the SEC has to vote again to approve the conditions. It’s a reminder of how many layers of regulatory processes are still in effect.

Ripple adapts strategy to keep on the right side of regulators

With legal developments hanging in the balance, Ripple has overhauled its strategy for selling to big-money institutional players. The company’s management says that it no longer does the sort of deals that attracted the scrutiny of the SEC.

There has been a deliberate change in strategy on how it has managed XRP sales since 2018. The company has ramped up disclosures, held conversations with regulators and even explored filing registration statements to adhere more strictly to compliance.

However, the proactive strategy is far from its old veil-of-secrecy approach to sales.

Some analysts also argue that the change in SEC leadership could promote Ripple’s revised strategy. Though former SEC Chair Gary Gensler was seen as anti-crypto, changing leadership and regulations could usher in a more balanced perspective. That could lessen the chance of further enforcement actions against Ripple for its institutional activities.

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