July 13 (Reuters) - Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges, a U.S. judge ruled on Thursday, delivering a landmark legal victory for the cryptocurrency industry that sent the value of XRP soaring.

XRP was up 25% after the ruling, according to Refinitiv Eikon data.

The ruling by U.S. District Judge Analisa Torres was the first win for a cryptocurrency company in a case brought by the U.S. Securities and Exchange Commission.

While the decision is specific to the facts of the case, it likely will prove ammunition for other crypto firms battling the securities regulator over whether their products fall under the SEC's jurisdiction.

The ruling was also a partial victory for the SEC. The judge held that Ripple violated federal securities law by selling XRP directly to sophisticated investors, and that a trial should be held over its executives' role in those sales.

It is possible for the ruling to be appealed.

A spokesperson for the SEC said the regulator is reviewing the decision.

Ripple Chief Legal Officer Stuart Alderoty called the ruling a "huge win" in a post on Twitter.

WHEN CRYPTO IS NOT A SECURITY

The SEC had accused the company and its current and former chief executives of conducting a $1.3 billion unregistered securities offering by selling XRP, which Ripple's founders created in 2012.

The case has been closely watched in the cryptocurrency industry, which disputes the SEC's assertion that the vast majority of crypto tokens are securities and subject to its strict investor protection rules. The agency has brought more than 100 enforcement crypto actions, claiming various tokens are securities, but many of those have ended in settlements.

In the few cases that have gone to court, judges have agreed with the SEC that the crypto assets at issue were securities.

Torres ruled that Ripple's XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts.

Those sales were "blind bid/ask transactions," she said, in which the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP."

Torres applied a U.S. Supreme Court case that said "an investment of money in a common enterprise with profits to come solely from the efforts of others," is a kind of security called an investment contract.

XRP sales on cryptocurrency platforms by Ripple CEO Brad Garlinghouse and co-founder and former CEO Chris Larsen, and other distributions including compensation to employees also did not involve securities, Torres ruled.

PARTIAL WIN FOR THE SEC

But the ruling was also a partial win for the U.S. Securities and Exchange Commission, as Torres found the company's $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities.

Torres ruled that Ripple's marketing efforts aimed at institutional investors made clear the company "was pitching a speculative value proposition for XRP" that depended on the company's efforts to develop the blockchain infrastructure behind the digital asset.

She also said a jury must decide whether Garlinghouse and Larsen aided the company's violation of law.

And they cannot argue at trial that they lacked "fair notice" that XRP was a cryptocurrency, she wrote.

"The law does not require the SEC to warn all potential violators on an individual or industry level," she said.

A spokesperson for the SEC said the regulator is pleased with those rulings.

CALLS FOR LEGISLATION

Garlinghouse celebrated the ruling in a post on Twitter.

"Thankful to everyone who helped us get to today's decision – one that is for all crypto innovation in the US," he wrote.

An attorney for Larsen did not immediately reply to a request for comment.

Gary DeWaal, an attorney at Katten Muchin Rosenman, said the ruling is likely to be helpful to Coinbase, the largest U.S. crypto exchange, which is fighting its own SEC case.

The market reaction indicates the ruling is a "tremendous event for the industry," he said.

Both the Ripple and Coinbase cases focus on registration requirements and whether certain digital assets are securities under U.S. law.

Securities, as opposed to other assets such as commodities, are strictly regulated, must be registered with the SEC by their issuer and require detailed disclosures to inform investors of potential risks.

The crypto industry has argued that new legislation is needed to provide clear rules for tokens.

The ruling also renewed calls for Congress to pass legislation clarifying the status of digital assets.

House of Representatives Majority Whip Tom Emmer, a Republican, in a post on Twitter said the ruling established that "a token is separate and distinct from an investment contract it may or may not be part of."

"Now, let’s make it law," he said.

(Reporting by Jody Godoy and Chris Prentice in New York and Tom Hals in Wilmington, Delaware; Editing by Chizu Nomiyama, Conor Humphries and Leslie Adler)