Court Allows Lawsuit Against Ripple Over CEO’s Alleged Violation of California Securities Laws
A United States federal court judge has given the green light to a civil securities lawsuit against Ripple Labs, denying the company’s bid for summary judgment.
The lawsuit accuses Ripple CEO Brad Garlinghouse of violating California securities laws.
California District Court Judge Phyllis Hamilton’s recent order means that a jury will ultimately decide whether Garlinghouse made misleading statements in a 2017 interview.
While the judge dismissed four allegations related to Ripple’s failure to register XRP as a security, one claim regarding Garlinghouse’s alleged false statements remains.
In the interview on Canada’s BNN Bloomberg, Garlinghouse professed being “very, very long” on XRP.
However, the lawsuit alleges that this statement was false, as he purportedly sold millions of XRP throughout the same year.
Ripple’s Chief Legal Officer, Stu Alderoty, expressed satisfaction with the court’s decision, stating that all class action claims were dismissed, and the remaining individual state law claim would be addressed at trial.
Judge Hamilton’s order addressed Ripple’s argument that the misleading statement claim should be dismissed since XRP does not qualify as a security under the Howey test.
The judge referred to a landmark ruling in July 2023 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.
She emphasized that these investors would have expected profits from Ripple’s efforts, a key factor in the Howey test.
The court found that a reasonable investor might have anticipated profit due to Ripple’s endeavors to facilitate XRP’s use in cross-border payments and other
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