Analisa Torres: The Judge Who Gave Ripple and XRP Hope

Federal Judge Analisa Torres gave the crypto industry a shot in the arm last July when she handed Ripple a partial victory in its fight with the U.S. Securities and Exchange Commission.

While Ripple violated federal securities law in selling XRP directly to institutional clients, it did not do so by putting XRP on exchanges for retail customers to purchase, Judge Torres found.

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The crypto industry and the SEC have vastly divergent views on how exactly federal securities laws apply to digital assets. In the absence of legislation from Congress that might create so-called bright-lines guidance or build a safe harbor for token issuers and trading platforms alike, the U.S. judiciary system has been tasked with figuring out if the SEC's interpretation is correct – or if companies have a point when they say the laws on the books are outdated and inapplicable.

It's more than just an academic question: If an asset is a security, its issuer is subject to strict disclosure and registration rules in the U.S., rules that crypto companies say are impossible for digital asset issuers to comply with due to the very nature of decentralized, disintermediated tokens. Trading platforms listing those assets are likewise subject to a strict regulatory regime, similar to their traditional finance counterparts. And if an asset is not a security, well, things are a lot easier for all these companies.

Nowhere is this question more pertinent than the District Court for the Southern District of New York, which is currently overseeing nearly a dozen crypto matters, including several cases brought by the SEC. Judge Torres' ruling that Ripple legally had sold and may continue to sell XRP to retail investors through blind bid/ask sales on exchanges has the potential to create a precedent the industry can come back to over and over.

"Programmatic Buyers could not have known if their payments of money went to Ripple, or any other seller of XRP," Judge Torres wrote. "The vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all. An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money."

The ruling sent shockwaves through the industry, though it also raised questions about just what sort of precedent it set.

The ruling was "obviously very beneficial for exchanges in particular," said Grant Gulovsen, an attorney who represents crypto clients. But, the extent to which the ruling will benefit crypto companies and projects "really depends."

As of this moment, the ruling is in a single courtroom in a single court, and it's clear the SEC intends to appeal it once the overall case has concluded. The regulator has already withdrawn charges against Ripple executives Brad Garlinghouse and Chris Larsen, seemingly in a bid to get to the appeal faster.

"If [the ruling] is adopted by the court of appeals, it potentially provides a pathway for projects to raise funds," Gulovsen said. Judge Torres' ruling may also prove to be an outlier. Another judge in the same court, Judge Jed Rakoff, explicitly rejected Judge Torres' analysis in a summary judgment ruling of his own in the SEC's case against Terraform Labs – though, of course, the circumstances of that ruling are unique to that case, as the circumstances of the Ripple ruling are unique to this case.

Getting an appeals court ruling may take a while. Judge Torres set a schedule for some additional processes that extends through April 2024, and the SEC can't appeal until the case has been resolved.

Until then, at least, it provides ammunition for other crypto companies facing their own legal woes.