Stocks of crypto companies fell Tuesday after a US judge said digital currencies can be considered securities when sold to the general public, contradicting an earlier ruling from a judge in a separate case.
The decision bolstered the view of the Securities and Exchange Commission (SEC), which is the plaintiff in both cases.
The US regulator has argued certain cryptocurrencies are securities and therefore should be overseen by the SEC, using that assertion as the basis for several lawsuits against major industry players.
US crypto exchange Coinbase Global (COIN), which faces one such lawsuit from the SEC, dropped as much as 8.5% Tuesday. The price of bitcoin (BTC-USD) also fell below $29,000.
The new decision that upended stocks came from US Judge Jed Rakoff in the Southern District of New York, who opposed an earlier ruling from Analisa Torres, another judge in the same US district court.
Torres had concluded in mid-July that the XRP digital token issued by Ripple Labs was a security only when it was sold to institutional investors, and not when it was purchased by the general public.
Rakoff disagreed with that specific view in his case, in which the SEC has alleged stablecoin issuer Terraform Labs sold unregistered securities.
"The Court rejects the approach recently adopted by another judge of this District," he wrote.
The disagreement was a blow to some in the crypto world who had hailed the earlier ruling from Torres.
"Well, it was a fun few weeks," said Gabriel Shapiro, general counsel for digital asset research and consulting firm Delphi Labs.
The chief legal officer of Ripple Labs, Stuart Alderoty, said in a tweet that the new ruling from Rakoff "changes NOTHING about the Ripple ruling that XRP is not a security."
well, it was a fun few weeks, gg https://t.co/WsCr7EdKeY
— _gabrielShapir0 (@lex_node) August 1, 2023
The contradictory rulings makes the regulatory clarity surrounding most cryptocurrencies as murky as ever, according to Stephen Palley, a Washington, D.C.-based legal partner with Brown Rudnick who co-chairs the firm’s digital commerce group.
“Expect to see more disagreement between courts, and less clarity, until Congress acts,” Palley said Monday over Twitter.
Neither opinion from the US District Court in the Southern District of New York will set a binding precedent, he told Yahoo Finance Tuesday. "As we see here, even within the same judicial district ... one judge isn’t required to follow another judge’s holding."
In another crypto case in the Southern District of NY, Judge Rakoff specifically declines to adopt Judge Torres’ reasoning in the Ripple case.
Expect to see more disagreement between courts, and less clarity, until congress acts.
Link to opinion: https://t.co/BMywIrxm6e pic.twitter.com/uFdytfRHcG— Palley (@stephendpalley) July 31, 2023
The SEC has brought 17 enforcement actions against crypto investors and businesses since the beginning of January. That includes cases against Coinbase and Binance, the world's biggest crypto exchange.
Its most recent case came Monday when it alleged that Richard Heart, founder of crypto token project Hex, misappropriated millions of dollars from investors.
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