The CEO of Ripple faces a securities lawsuit over ‘misleading statements’

Judge Phyllis Hamilton found XRP could be security when sold to retail and gave the go-ahead to a lawsuit over statements from Ripple CEO Brad Garlinghouse. In a lawsuit alleging that Ripple Labs CEO violated California securities laws, a federal judge denied Ripple Labs‘ summary judgment bid.

California District Court Judge Phyllis Hamilton’s June 20 order means a jury will decide if Ripple boss Brad Garlinghouse made “misleading statements” in a 2017 interview, the order has thrown out four allegations around Ripple’s “failure to register XRP as a security.”

In a 2017 interview with Canada’s BNN Bloomberg, Garlinghouse stated that he was “very, very long” on XRP $0.49, but the lawsuit claims that was incorrect because he “sold millions of XRP” that year.”We are glad that the California court dismissed all class-action allegations. “The one individual state law claim that survived will be dealt with at trial,” Ripple’s Chief Legal Officer, Stu Alderoty, told Cointelegraph in an email.

In her opinion, Judge Hamilton observed that Ripple had contended that the “misleading statement” claim should be dismissed because XRP is not a security under the Howey test, citing a historic ruling in a Securities and Exchange Commission litigation by Judge Analisa Torres in July 2023.

However, in her recent opinion, Judge Hamilton disagreed, ruling that XRP might be considered a security when offered to non-institutional investors. She stated that they would have expected earnings from Ripple’s efforts, which was one of the criteria utilised in 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.”

“Accordingly, the [court] cannot find as a matter of law that Ripple’s conduct would not have led a reasonable investor to expect profit due to the efforts of others,” the judge ruled.

According to Ripple’s Alderoty: “The ruling from Judge Torres in the SEC case still stands and nothing here disturbs that decision.” Last year, many in the US crypto community welcomed Judge Torres’ decision as a big triumph for the field, believing that other judges would use it as a precedent when deciding additional crypto issues. But it isn’t having the expected impact.

In the SEC’s case against Terraform Labs, presiding Judge Jed Rakoff — from the same courthouse as Judge Torres – disagreed with the Ripple ruling that rejected Terraform’s dismissal request in August. Terraform lost the case and had to pay a $4.5 billion settlement to the SEC.

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