A U.S. federal court has allowed a civil securities lawsuit against Ripple Labs to proceed, denying the company’s request for summary judgment. The lawsuit alleges Ripple’s CEO, Brad Garlinghouse, violated California securities laws.
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On June 20, California District Court Judge Phyllis Hamilton ruled that a jury must decide whether Garlinghouse made “misleading statements” in a 2017 interview. This ruling dismisses four allegations regarding Ripple’s failure to register XRP as a security but leaves the misleading statements claim intact.
In an interview with Canada’s BNN Bloomberg seven years ago, Garlinghouse stated he was “very, very long” on XRP despite allegedly selling millions of it that same year. The court’s order has raised questions about the nature of XRP as a security.
Court’s stance on XRP’s security status
Judge Hamilton notes that Ripple argued against the “misleading statement” claim by asserting that XRP is not a security under the Howey test. However, she disagreed, suggesting XRP could be considered a security when sold to retail investors, as they might expect profits from Ripple’s efforts—one of the criteria under the Howey test.
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.
Judge Hamilton.
Ripple’s Chief Legal Officer, Stu Alderoty, responded to the ruling by noting that while class action claims were dismissed, the individual state law claim will be addressed at trial.
This decision contrasts with a July 2023 ruling by Judge Analisa Torres, which found that XRP is not a security under the Howey test. Despite this, the current ruling maintains that the previous decision does not affect the case at hand.
Broader implications for the crypto industry
In related news, the American crypto sector hailed Judge Torres’ decision as a win, hoping it would set a precedent for other legal proceedings. However, its impact has been somewhat limited, evident in the SEC lawsuit against Terraform Labs, where Judge Jed Rakoff rejected the defense’s reliance on the Ripple case.
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Terraform Labs ultimately lost its case, agreeing to a $4.5 billion settlement with the SEC. This prolonged court dispute has underscored inconsistencies in how the SEC approaches cryptocurrency regulations, sparking concerns about the future treatment of XRP.
Market reactions on ripple and future prospects
Members of the XRP community on social media platform X are currently discussing whether the Securities and Exchange Commission (SEC) will handle Ripple in the same manner as Ethereum. A trader known as @XRPcryptowolf is questioning why the SEC dropped its lawsuit against Ethereum Consensys while continuing with the lawsuit against XRP.
Why did the SEC withdraw the lawsuit against Ethereum Consensys but not the $XRP case?
— XRPcryptowolf (@XRPcryptowolf) June 19, 2024
Despite facing these obstacles, Ripples XRP stands out as one of the leading cryptocurrencies based on market capitalization. Recent talks about an XRP exchange-traded fund (ETF) have stirred up interest in the digital currency, hinting at a potential rise in value if regulatory challenges are overcome.
The leadership at Ripple has been vocal about supporting a variety of cryptocurrency ETFs, with CEO Garlinghouse indicating that there is demand for alternatives beyond Bitcoin and Ethereum ETFs.
While the final resolution of the battle between Ripple and the SEC is uncertain, recent developments imply that the SEC might not contest the verdict that XRP is not a security. If this scenario unfolds, XRP could experience a surge in its value. The ongoing anticipation surrounding this lawsuit continues to influence the trajectory of the crypto market.
Cryptopolitan Reporting by Florence Muchai
