In the SEC’s closely-watched action against the crypto firm Ripple, Judge Torres on Thursday issued a summary judgment decision finding that some types of sales of Ripple’s crypto token, XRP, were governed by the securities laws while others were not. The decision is a notable counterweight to the SEC’s effort to broadly categorize crypto transactions as falling under the securities laws.

The key issue was whether the underlying transactions met the definition of the “investment contracts” as interpreted by the Supreme Court’s decision in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Under Howey, a transaction is an investment contract if there is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

For XRP’s sales to institutional investors, Judge Torres found that the Howey test was met because the investors paid money to Ripple, which then “used the funds it received from its Institutional Sales to promote and increase the value of XRP by developing uses for XRP and protecting the XRP trading market.”

Sales on digital asset exchanges were different, however, because the purchasers (referred to as “Programmatic Buyers” in the opinion) did not even know if the funds were going to Ripple:

Whereas the Institutional Buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP Programmatic Buyers could not reasonably expect the same. Indeed, Ripple’s Programmatic Sales were blind bid/ask transactions, and Programmatic Buyers could not have known if their payments of money went to Ripple, or any other seller of XRP.

Since 2017, Ripple’s Programmatic Sales represented less than 1% of the global XRP trading volume. Therefore, 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 decision was covered in the WSJ, Bloomberg and Reuters (among others).