A US federal court judge has allowed a civil securities lawsuit against Ripple Labs to proceed.
This decision came after Judge Phyllis Hamilton of the California District Court denied Ripple’s request for summary judgment in a case involving allegations that its CEO, Brad Garlinghouse, violated California securities laws.
“Misleading Statements” on XRP
The allegations focus on claims that the exec made “misleading statements” about XRP’s status during a televised interview while at the same time expressing skepticism about the utility of other digital assets.
The official court document said that this statement was shared on Ripple’s official Twitter account, which amplified its reach.
The plaintiff argued that Garlinghouse’s statement was misleading and claimed that the exec had been selling millions of XRP throughout 2017 on various cryptocurrency exchanges despite publicly announcing that he remains “very, very, very long XRP” and his intention to “hodl” the asset.
“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.”
Court Ruling Challenges XRP’s Status for Non-Institutional Investors
Judge Hamilton’s ruling addressed Ripple’s argument that the “misleading statement” allegation should be dismissed since XRP does not meet the criteria of security under the Howey test. The blockchain firm had cited Judge Analisa Torres’ decision from July 2023 in its lawsuit involving the Securities and Exchange Commission.
However, Hamilton took a different stance in her recent order and instead determined that XRP could potentially be classified as a security when sold to individual investors, as opposed to institutional ones.
As noted in the filing, she reasoned that these non-institutional investors would have anticipated profits resulting from Ripple’s efforts, which is one of the important factors considered in the Howey test for determining whether an asset qualifies as a security.
“Overall, given the relative novelty of cryptocurrency, and given the lack of any controlling law regarding the motivation of a reasonable cryptocurrency investor, 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
