Debevoise & Plimpton LLP partner Andrew Ceresney has been recognized as “Litigator of the Week” by The American Lawyer for helping lead a landmark cryptocurrency win on behalf of Ripple Labs. Last week, Judge Analisa Torres in the Southern District of New York Court ruled that Ripple’s XRP token is not a security, and not subject to SEC regulation when sold to the general public. The decision represents the first time a court has ever held that a digital asset challenged by the SEC was not a security. Debevoise represented Ripple with co-counsel Kellogg Hansen.

The ruling also dismissed the SEC’s claims against Ripple’s CEO Brad Garlinghouse and co-founder Chris Larsen – who were represented by Cleary Gottlieb and Paul, Weiss, respectively – that their personal sales and offers of XRP were unlawful securities offerings.

Since 1946, the Howey Test has been used to determine whether a particular transaction qualifies as an investment contract, and therefore a security under federal law. Despite significant advances in technology and the advent of bitcoin and other digital assets, the SEC has continued to apply the same Howey criteria, and over several years has successfully convinced U.S. courts that various companies’ digital assets were securities under this legal framework. The SEC used this same legal argument in December 2020 when it sued Ripple, Mr. Garlinghouse and Mr. Larsen for allegedly engaging in an eight-year continuous unregistered securities offering of XRP amounting to $2 billion.

Following years of complex litigation involving enormous volumes of discovery, third party subpoenas and over a dozen of expert depositions, Debevoise and co-counsel formulated a strong joint defense strategy involving novel arguments surrounding the Howey test and the interpretation of the term “investment contracts.” On July 13, Judge Torres ruled in favor of Ripple, Mr. Garlinghouse and Mr. Larsen, citing that XRP as a digital token was not in and of itself an investment contract.

For many years now, the digital asset industry has been grappling with uncertainty over the regulatory status of the fundamental basis of the industry as a whole. Last week’s decision signals that there is a way to engage in digital asset transactions without implicating securities laws. It also paves the way for potential winning arguments in the pending cases for digital asset exchanges, issuers, and other market participants and offers a glimmer of hope for the industry, which could have faced an existential threat if the court had ruled in favor of the SEC.

The Debevoise team was led by Andrew Ceresney, Mary Jo White, Lisa Zornberg and counsel Erol Gulay and Christopher Ford and included associates Scott Caravello, Kyle Chermak, Ashley Hahn, Matt Hirsch, Emily Jenab, Daniel Joiner, Benjamin Leb, Daniel Marcus, Maureen Mentrek, Tara Raam, Leyla Salman, Gabriel Silva, Madeline Silva, and Harold Williford.