Ripple is set for new legal battles after a US judge in California approved a lawsuit against the crypto company regarding alleged misleading statements by its CEO, Brad Garlinghouse.
This means the case would go to trial, and a jury would decide if the Ripple boss had misled investors into investing in the digital asset via a televised 2017 interview with the Business News Network where he said:
“I’m long XRP, I’m very, very long XRP as a percentage of my personal balance sheet. . . . . [I am] not long on some of the other [digital] assets, because it is not clear to me what’s the real utility, what problem are they really solving . . . if you’re solving a real problem, if it’s a scaled problem, then I think you have a huge opportunity to continue to grow that. We have been really fortunate obviously, I remain very, very, very long XRP, there is an expression in the industry HODL, instead of hold, it’s HODL… I’m on the HODL side.”
Ripple tried to dismiss the “misleading statement” claim by arguing that XRP was not a security. However, Judge Phyllis Hamilton noted that while XRP may not be classified as a security, it could still be considered one when sold to non-institutional investors.
The judge highlighted that investors’ expectation of profit could render XRP a security, aligning with one of the parameters of the Howey Test. She further noted that Ripple’s actions, such as its efforts to promote using XRP in cross-border payments and other uses, could lead investors to expect profits from XRP.
As a result, Judge Hamilton stated:
“Accordingly, the [Court] cannot find as a matter of law that Ripple’s conduct would not have led a reasonable investor to have an expectation of profit due to the efforts of others.”
Following CoinDesk’s reports that the filing indicated a ‘breakaway’ from the New York ruling, Ripple Chief Legal Officer Stuart Alderoty commented that
“The CA judge dismissed all allegations suggesting that Ripple violated federal securities law. The NY ruling that XRP is not a security stands undisturbed.
One state law claim, based on a 2017 statement, is going to trial. The plaintiff — who didn’t buy directly from Ripple and can’t say if he even heard the statement before he traded — allegedly lost a couple hundred $. We look forward to that cross examination”
Breakdown of the court filing findings
Summary Judgment:The court granted summary judgment in part and denied it in part for the defendants’ motion.Defendants are granted summary judgment on the federal and state class claims brought by the plaintiffs, meaning these claims will not proceed to trial.The court denied summary judgment for the plaintiff Bradley Sostack’s individual claim under California law, which will proceed to trial.Claims Overview:Federal Claims: Plaintiff’s federal claims for unregistered securities are barred by the statute of repose.State Law Claims: Plaintiff failed to establish privity (a direct relationship) with the defendants, which is required for California state law claims related to unregistered securities.Misleading Statements Claim: The court denied summary judgment for the claim that defendant Garlinghouse made misleading statements regarding his position on XRP. This claim will proceed to trial.Daubert Motions:Two motions related to expert testimony on classwide damages were denied as moot since the class claims were resolved.Judgment on the remaining four Daubert motions was deferred, with the parties given 28 days to reassess their positions on the necessity of these motions.Motions to Seal:The court directed the parties to file a narrowed motion to seal certain exhibits by July 8, 2024, following the denial of sealing any portions of the briefs.
The document establishes the next steps for the individual claim related to misleading statements and outlines the resolution of class claims based on federal and state securities laws.
Ripple has yet to respond to CryptoSlate’s request for comment as of press time.
Updated: Added Ripple public comments.
Mentioned in this article
XRP 
Ripple 
Brad Garlinghouse