Ripple Labs, the blockchain company that's come under fire for its sale of XRP tokens, is facing yet another legal battle as a civil securities lawsuit against its CEO, Brad Garlinghouse, has been given the green light by a California federal court judge.
The lawsuit, which alleges that Garlinghouse made "misleading statements" in a 2017 interview, will now proceed to trial, with a jury set to hear the case.
The lawsuit centers around an interview Garlinghouse gave to Canada's BNN Bloomberg in 2017, where he stated that he was "very, very long" on XRP. However, the plaintiffs allege that this statement was misleading, as Garlinghouse reportedly sold millions of XRP in the same year.
Last year, Judge Phyllis Hamilton dismissed four allegations related to Ripple's failure to register XRP as a security. However, the judge allowed the claim about Garlinghouse's alleged misleading statements to move forward.
SEC Dismisses Lawsuit Against Ripple Execs in 'Stunning Capitulation'
The United States Securities and Exchange Commission (SEC) voluntarily dismissed charges Thursday against Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen, both of whom had been charged alongside the company for allegedly violating securities laws with sales of the XRP token. Ripple described the decision as a "stunning capitulation" in a press release, while Ripple Chief Legal Officer Stuart Alderoty called it "a surrender by the SEC" in a tweet. The price of XRP is up about 5%...
This lawsuit is separate from the ongoing legal battle between Ripple and the Securities and Exchange Commission (SEC), which alleges that XRP is a security.
In July 2023, a New York federal court ruled that the sale of XRP on exchanges and through algorithms did not violate U.S. securities laws, but sales to institutions did.
Judge Rules Ripple Sales of XRP Were Not Securities—Except to Institutions
The federal judge presiding over Ripple Lab's case against the Securities and Exchange Commission has ruled that the XRP token "is not necessarily a security on its face"—except when it was sold to raise funds from institutions. Federal district judge Analisa Torres ruled that programmatic sales to public buyers and distributions of XRP to Ripple Labs employees did not constitute the sale of unregistered securities. The court did not address secondary market sales of XRP on cryptocurrency exchan...
In the California case, Ripple's lawyers argued that the allegations of misleading statements should be dismissed, as XRP is not a security under the Howey test. They also cited the New York court's order to bolster their arguments.
However, Judge Hamilton noted that XRP could be considered a security when sold to non-institutional investors, as they would have expected profits from Ripple's efforts.
"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," the judge wrote in a filing.
In a comment sent to Decrypt, Ripple Chief Legal Officer Stu Alderoty celebrated the dismissed claims while emphasizing the distinction from the SEC battle.
“We are pleased that the California court dismissed all class action claims," he said. "The one individual state law claim that survived will be dealt with at trial. The ruling from Judge Torres in the SEC case still stands and nothing here disturbs that decision."
Edited by Stacy Elliott.
Editor's note: This story was updated after publication to include a comment from Ripple.
