When is a Crypto Sale an Unregistered Securities Offering? Two SDNY Decisions Provide Conflicting Guidance
The cryptocurrency industry and its watchers are as keen as ever on gaining clear guidance on when, and how, the sale of a digital asset constitutes an unregistered securities offering. However, two recent SDNY cases considered this question and reached differing conclusions.
September 13, 2023 at 12:00 PM
7 minute read
As the Securities and Exchange Commission (SEC) continues to step up its enforcement activities in the cryptocurrency space, the industry and its watchers are as keen as ever on gaining clear guidance on when, and how, the sale of a digital asset constitutes an unregistered securities offering.
Two recent U.S. District Court for the Southern District of New York (SDNY) cases, SEC v. Ripple Labs and SEC v. Terraform Labs, considered this question and reached differing conclusions.
In particular, the July 13 SEC v. Ripple Labs decision drew a line finding that sale to "institutional buyers," who knew their payment would be invested in Ripple's ecosystem, was an unregistered securities offering, whereas sale to "programmatic buyers," who purchased on the secondary markets without knowledge that their payment would go to Ripple or be invested in Ripple's ecosystem, was not a securities offering. No. 20 CIV. 10832 (AT), 2023 WL 4507900 (S.D.N.Y. July 13, 2023). The July 31 SEC v. Terraform Labs decision rejected this framework. No. 23-CV-1346 (JSR), 2023 WL 4858299 (S.D.N.Y. July 31, 2023).
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