Lawyer Questions Claims That Ripple’s ODL Agreement Satisfies The Howey Test

• Bill Morgan has questioned the claim that Ripple’s ODL agreement satisfies the Howey Test.
• Morgan asked how and where the expectation of profit arose from the contract.
• According to Morgan, the reviewed agreement did not involve a transfer of title in XRP or a sale.

Renowned crypto lawyer Bill Morgan has questioned the claim that Ripple’s ODL agreement satisfies the Howey Test. In a recent post on X, the prominent crypto personality shared his findings from the 2020 ODL contract between Ripple and an Australian ODL customer. After his review, Morgan asked how and where the expectation of profit arose from the contract.

Following his review, Morgan highlighted some of the features he discovered in the contract. He noted that the contract involved XRP transfer into the purchaser’s agreed account with Bitstamp or another account and held on bailment, which the customer will hold as a bailee. The crypto lawyer emphasized the transaction was a transfer and not a transfer of title in the XRP or a sale,  describing it as “Committed XRP.”

Morgan also noted that the transaction becomes a sale once the ODL customer withdraws XRP from the bailment account. He explained that the withdrawal is converted into a  USD purchase price at a market rate managed by an automated software system. Hence, upon withdrawal of the XRP, the ODL customer is deemed to have purchased XRP from the Ripple company at the market rate.

According to Morgan, the contract terms constrain the ODL customer from purchasing the Committed XRP for investment purposes or with an expectation of profit. The customer shall only use the Committed XRP for an ODL transaction on an exchange or through a party approved for ODL.  

Morgan further noted that breaching the agreement term, which Ripple has the right to monitor, can result in the termination of the agreement and the return to Ripple of all unpurchased XRP in the bailment account.