In the aftermath of the recent Terra case ruling, Stuart Alderoty, Chief Legal Officer (CLO) at Ripple, has come forward to clarify the impact on the status of XRP as a security. Alderoty asserted that the decision in the Terra case does not alter the conclusion reached in the Ripple case, where it was ruled that XRP is not a security.
He emphasized that the Ripple case benefited from a comprehensive factual record developed over two years, unlike the still-early stages of the Terra case, media reports said.
Alderoty highlighted that the Terra judge appeared to have misinterpreted the reasoning behind the Ripple judge’s decision. He pointed out a particular oversight regarding the distinction between institutional and public sales of digital assets, wherein secondary market traders cannot “invest money” if they are unaware of the sellers’ identities.
The Terra case, involving the Securities and Exchange Commission (SEC) and Terraform Labs, has caused confusion in the crypto industry concerning regulatory clarity. The SEC alleges that Terraform Labs and its founder, Do Kwon, made misrepresentations to entice both institutional and retail investors to purchase and hold their products, using false and materially misleading statements.
In the Ripple case, Judge Torres classified XRP as a security when sold directly to institutional investors, but not when traded on exchanges by the general public. However, in the Terra ruling, Judge Rakoff rejected this approach and did not differentiate between coins sold to institutional investors and those traded on secondary markets.
The key difference seems to lie in the level of factual evidence presented to the court. While the Ripple case benefited from an extensive factual record, the Terra case is still in its preliminary stages, and the judge is presently required to accept all allegations by the SEC as true.
Consequently, the two cases have produced contrasting outcomes, contributing to the ongoing uncertainty in the crypto industry regarding the regulatory status of various digital assets. However, as the Terra case progresses, further clarity may emerge on the SEC’s stance towards different digital tokens.
