Legal Battle Against Ripple Over CEO’s Alleged Violation of California Securities Laws Moves Forward
A federal court judge in the United States has authorized a civil securities lawsuit against Ripple Labs, rejecting the company’s request for summary judgment. The lawsuit specifically accuses Ripple CEO Brad Garlinghouse of breaching California securities laws.
The recent ruling by California District Court Judge Phyllis Hamilton paves the way for a jury to determine whether Garlinghouse made deceptive statements during a 2017 interview. While the judge dismissed four claims related to Ripple’s failure to register XRP as a security, one allegation concerning Garlinghouse’s alleged false statements remains unresolved.
During an interview on Canada’s BNN Bloomberg, Garlinghouse claimed to be highly optimistic about XRP, stating that he was “very, very long” on the token. However, the lawsuit contends that this statement was misleading, as Garlinghouse reportedly sold millions of XRP during the same period.
Ripple’s Chief Legal Officer, Stu Alderoty, expressed contentment with the court’s decision, noting that all class action claims were dismissed except for the remaining individual state law claim, which will be addressed during the trial.
Judge Hamilton rejected Ripple’s argument to dismiss the misleading statement claim based on the Howey test, referring to a previous ruling by Judge Analisa Torres in a Securities and Exchange Commission (SEC) lawsuit. However, Judge Hamilton disagreed, asserting that XRP could be considered a security when sold to non-institutional investors who may anticipate profits from Ripple’s activities.
The court concluded that Ripple’s actions may have led a reasonable investor to expect profit from the company’s efforts, emphasizing the significance of the Howey test in determining securities status.
The crypto industry had high hopes following Judge Torres’ decision as a precedent in similar cases, but subsequent rulings, like Judge Jed Rakoff’s decision in the Terraform Labs case, have shown varied perspectives. This ultimately led to a substantial settlement with the SEC.
Regarding Ripple’s legal battles, a US court ruled in favor of the company last year in the SEC lawsuit, stating that selling XRP on exchanges does not constitute an investment contract. However, the court also recognized XRP as a security when sold to institutional investors based on the Howey Test criteria.
The XRP Ledger has witnessed a surge in transaction activity, with transactions more than doubling from the fourth quarter of 2023 to the first quarter of 2024. As the legal battle continues, the outcome will have significant implications for Ripple and the broader crypto industry.
