SDNY Rules Ripple's XRP Token Was – And Was Not – A Security

On July 13, 2023, US District Judge Analisa Torres of the US District Court for the Southern District of New York ruled that Ripple Labs' token, XRP, was a security when sold to institutional investors and not a security when sold to retail investors using digital asset exchanges or when used for service providers.

Judge Torres's analysis in Securities and Exchange Commission v. Ripple Labs, Inc. relied on the Supreme Court's Howey test, which outlines the standard for an investment contract and, therefore, a security under federal securities laws. Judge Torres rejected many of the novel arguments made by Ripple but ultimately decided in its favor, except for one category of token sales. This alert looks solely at the court's analysis of XRP as an investment contract.