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Ripple Faces Civil Securities Lawsuit Despite Partial Dismissal

Ripple

Denying its summary judgment request in a complaint claiming its CEO violated California securities laws, a United States federal court judge has greenlit a civil securities action against Ripple Labs.

False Statements Under Close Examining Authority

The June 20 ruling of California District Court Judge Phyllis Hamilton indicates that jurors will consider whether Ripple CEO Brad Garlinghouse made “misleading statements” in a 2017 interview. Four claims over Ripple’s “failure to register XRP as a security” have been rejected by the ruling. Garlinghouse said he was “very, very long” on XRP in the 2017 interview on Canada’s BNN Bloomberg, but the lawsuit claims it was untrue as he “sold millions of XRP” during the year.

“We are happy that all class action allegations the California court rejected. Stu Alderoty, Chief Legal Officer of Ripple, indicated that the one surviving state law suit will be handled at trial.

Discussion on the Security Situation of XRP

Judge Hamilton pointed out that XRP is not a security under the Howey test hence the “misleading statement” allegation should be denied. This argument cited a historic decision in a Securities and Exchange Commission (SEC) litigation made in July 2023 by Judge Analisa Torres. Judge Hamilton disagreed, however, and said XRP may be a securities traded to non-institutional investors. One of the indicators used in the Howey test, she added, they would have anticipated earnings from Ripple’s activities.

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“The court declines to find as a matter of law that a reasonable investor would have derived any expectation of profit from general cryptocurrency market trends, as opposed to Ripple’s efforts to facilitate XRP’s use in cross-border payments, among other things.”

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Ripple’s Alderoty said, “The ruling from Judge Torres in the SEC case still stands and nothing here disturbs that decision.”

Ripple’s Legal Challenges and Industry Impact

Believing other courts would take Judge Torres’ decision as precedent when evaluating future crypto cases, many in the U.S. crypto market praised her decision as a major triumph for the field last year. It is not, however, making as significant an effect as predicted. Presiding Judge Jed Rakoff, from the same courtroom as Judge Torres, disagreed with the Ripple decision in the SEC’s case against Terraform Labs in denying Terraform’s dismissal request in August. Terraform subsequently lost the action and paid a $4.5 billion SEC settlement.

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