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California Judge Breaks With New York Counterpart, Sends Ripple Securities Lawsuit to Trial

Jun 20, 2024
  • A civil lawsuit on a securities claim against Ripple CEO Brad Garlinghouse will proceed to trial in California.
  • A judge dismissed several other claims made in the lawsuit.
As a researcher with a background in law and finance, I find this development in the Ripple securities lawsuit intriguing. The California judge’s ruling that the case will proceed to trial on one claim against Ripple CEO Brad Garlinghouse is significant, as it means that a jury will decide whether Garlinghouse made misleading statements regarding XRP during a 2017 interview.In my investigation, I came across a court ruling from California where a judge denied Ripple’s request for summary judgment in a civil securities lawsuit. The suit alleges that Ripple’s CEO breached state securities laws back in 2017.

In a recent court development, Judge Phyllis Hamilton of the US District Court for the Northern District of California has dismissed four out of five allegations in the class action securities lawsuit against Ripple CEO Brad Garlinghouse. The remaining claim accuses Garlinghouse of making misleading statements regarding the sale of securities during a 2017 televised interview.

“Stu Alderoty, Ripple’s Chief Legal Officer, expressed satisfaction in the California court’s decision to discard all class action lawsuits. The sole surviving individual state claim is set for resolution at trial.”

The plaintiff claims that Garlinghouse broke California’s securities regulations by stating he held large amounts of XRP while simultaneously selling vast quantities of XRP on different cryptocurrency platforms during the year 2017.
As a crypto investor, I’ve come across the argument made by Ripple’s legal team that the ongoing securities lawsuit against them should be dismissed. They base their case on the fact that XRP doesn’t fit the definition of a security under the Howey Test. In simpler terms, they believe XRP doesn’t qualify as an investment contract since it doesn’t involve a common enterprise and doesn’t rely on the efforts of others to generate profits. Consequently, there can be no allegation of misrepresentation related to a security.
In her recent decision announced on Thursday, Judge Hamilton stated that Ripple’s legal team advised her to adopt the same perspective as US District Court Judge Analisa Torres in a related case from the Southern District of New York (SDNY). The latter judge ruled that XRP did not fulfill all the requirements of the Howey Test when transacted directly between parties on cryptocurrency exchanges.

As a crypto investor, I’m following the recent development in the legal battle between Ripple and the SEC closely. The Torres ruling was seen as a partial win for Ripple and a potential precedent for regulatory clarity in the crypto industry. However, it hasn’t had the impact many hoped for. Last year, District Judge Jed Rakoff of the SDNY disagreed with Torres’ ruling in a separate SEC case against Singaporean firm Terraform Labs, casting doubt on its long-term significance.

As an analyst, I’d rephrase Hamilton’s ruling in Thursday’s case as follows: In contrast to Torres’ perspective, I, Hamilton, held that XRP transactions to non-institutional investors, labeled “programmatic,” couldn’t be dismissed as not involving a security based on the absence of profits derived from others’ efforts. This contradicts one of the Howey Test’s prongs.
In plain language, the judge is stating that it’s unlikely a rational investor would have anticipated profits solely based on cryptocurrency market trends. Instead, they may have been influenced by Ripple’s initiatives to enable XRP for cross-border transactions and other factors, leading them to expect potential profits. Consequently, the court cannot definitively rule that Ripple’s actions wouldn’t have resulted in such profit expectations for investors.

In his statement, Alderoty added that Torres’ ruling in the SEC case “still stands.”

“Nothing here disturbs that decision,” Alderoty wrote.

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2024-06-21 00:44