Schwartz: SEC treated XRP as a security despite ‘just code’

On July 13, Ripple CTO Emeritus David Schwartz and former SEC regional director Marc Fagel exchanged posts on X about whether the SEC treated XRP itself as a security or targeted only Ripple’s sales practices.

Fagel, who spent more than 15 years at the SEC, argued the agency’s case focused on how Ripple sold XRP. He wrote that the SEC accepted XRP’s code did not by itself make the token a security, and that any violation flowed from Ripple’s selling conduct.

Schwartz responded that the SEC’s legal theory went beyond sales conduct. He pointed to the agency’s complaint, press releases and public statements to show the SEC framed XRP as the security and referred to Ripple executives as security holders. Schwartz wrote that the SEC told a court holders reasonably expected profits from Ripple’s efforts, a central element of the Howey test for investment contracts.

A contested point is Ripple’s programmatic sales on cryptocurrency exchanges. The SEC alleged some exchange transactions were securities offerings even when buyers could not identify the seller. Schwartz argued that allegation required a theory linking anonymous exchange buyers to Ripple’s ongoing activities, not just an argument about direct institutional sales.

The court’s ruling rejected parts of the SEC’s case and upheld others. It found some institutional sales met the Howey test and therefore were investment contracts, while programmatic exchange sales did not. Fagel characterized the decision as focused on selling conduct. Schwartz described the ruling as narrowing the SEC’s broader theory that connected token holders to Ripple.

The dispute highlights differing readings of the SEC’s public language and legal filings in the 2020 enforcement action. The SEC sued Ripple in 2020, alleging the company raised funds through unregistered securities offerings by selling XRP. The case produced mixed results when a judge applied the Howey test to different types of transactions.

Future courts will determine whether the Ripple ruling should be applied as a transaction-specific analysis or interpreted more broadly to link token holders to an issuer’s efforts. That legal question will influence how regulators treat other digital assets and how companies structure token distributions.