After SEC v. Ripple: What the XRP Ruling Means for Token Issuers

Judge Torres ruled that XRP sold programmatically on secondary markets is not a security. That holding has implications far beyond Ripple and XRP — here is what it means for anyone issuing tokens.

On July 13, 2023, Judge Analisa Torres of the Southern District of New York issued a partial summary judgment ruling in SEC v. Ripple Labs that changed the landscape for every token issuer operating under US securities law. The ruling's importance is not what it settled — it is how it reframed the analysis.

The SEC's case rested on a simple premise: XRP is a security and all XRP sales require registration. Judge Torres rejected that framing entirely. She held that the same token can be a security in one transaction context and not in another — and that context depends on the relationship between the seller and the buyer, not the token itself.

The Three Transaction Buckets

The Torres ruling divided XRP sales into three categories:

Institutional Sales (Securities)

Ripple sold XRP to sophisticated institutional investors through written Purchase Agreements that emphasized XRP's price appreciation potential and Ripple's efforts to increase XRP's value. These sales satisfied all four Howey prongs — particularly the "expectations of profits derived from the efforts of others" prong — because buyers were explicitly relying on Ripple's work to generate returns.

Programmatic Sales (Not Securities)

XRP sold algorithmically on public exchanges to anonymous retail buyers who had no direct relationship with Ripple and no knowledge that their purchase was from Ripple specifically did not constitute a security sale. The court found that retail buyers of XRP on Coinbase could not have had a reasonable expectation of profits specifically from Ripple's efforts — they were simply buying a liquid digital asset on an exchange, the same as buying any commodity.

Other Distributions (Not Securities)

XRP distributed as employee compensation or developer incentives did not involve an investment of money — failing the first Howey prong — and therefore was not a securities transaction.

The Practical Implications

The ruling's most significant implication for token issuers is the confirmation that the Howey analysis is transaction-specific, not token-specific. This means:

• A token can be a security when sold to investors through a structured offering while also being a non-security in secondary market trading
• The distribution mechanism matters more than the token design
• Marketing language is critical — if your offering materials create profit expectations tied to your efforts, you have likely created a security regardless of how the token is technically structured

What Still Remains Uncertain

The Torres ruling was a partial summary judgment — not a final determination on all counts. Ripple and the SEC reached a settlement in August 2025 resolving the institutional sales claims with a $125M penalty. The case did not produce a Supreme Court ruling or binding appellate precedent.

The most defensible post-Ripple strategy for token issuers is to structure primary offerings under clear securities exemptions (Reg D, Reg A+, or Reg CF for smaller raises), while building toward decentralization that reduces the reliance on issuer efforts over time. This approach works in both the current environment and under the eventual CLARITY Act framework.