A US federal court has allowed a civil securities lawsuit against Ripple Labs to proceed, denying the company’s request for summary judgment. The lawsuit accuses Ripple CEO Brad Garlinghouse of violating California securities laws.
Brad Garlinghouse – CEO Ripple
On June 20, California District Court Judge Phyllis Hamilton ruled that a jury must decide whether Garlinghouse made “false statements” in a 2017 interview. The ruling dismissed four allegations related to Ripple’s failure to register XRP as a security but upheld the misleading statements.
In an interview with Canada’s BNN Bloomberg seven years ago, Garlinghouse said he was “extremely long” on XRP, expressing great confidence and expectations for the token, despite allegedly selling millions of tokens. in the same year. The court order raised questions about the nature of XRP as a security.
Source: CourtListener
Court opinion on XRP’s securities status
Ripple has argued that XRP does not meet the criteria of an investment contract and therefore should not be classified as a security. However, Judge Hamilton held that XRP could be considered a security under the Howey Test, especially when sold to retail investors, as they could expect profits from Ripple’s efforts, which This fits one of the key elements of the Howey Test.
“The court declines to find as a matter of law that a reasonable investor would derive any expectation of profit from general cryptocurrency market trends, contrary to Ripple’s efforts to facilitate favors the use of XRP in cross-border payments, among other things.”
The Howey Test is a legal framework used by courts in the United States to determine whether certain transactions qualify as investment contracts and therefore securities. This test involves assessing whether there is an investment of money in a common enterprise with the expectation of profit primarily from the efforts of others.
Ripple’s chief legal officer, Stu Alderoty, reacted to the ruling by noting that although the class claims were dismissed, claims under individual state laws will be resolved at trial.
This decision contradicts a July 2023 ruling by Judge Analisa Torres, which declared that XRP is not a security under the Howey Test. Despite this, the current ruling still holds that the previous decision does not affect the current case.
This disagreement highlights the delicate legal debates surrounding digital assets like XRP, where courts must weigh different factors to determine their regulatory classification. The outcome of such debates could have an enormous impact on how these assets are managed and traded in financial markets.
Wider implications for the cryptocurrency industry
American cryptocurrency market participants hailed Judge Torres’ decision as a major victory, hoping that it will set a precedent for other legal cases in the future. However, its impact appears to have been limited, as shown in the SEC’s case against Terraform Labs, where Judge Jed Rakoff rejected defense arguments based on the Ripple case.
Despite facing these obstacles, the XRP token still stands out as one of the top cryptocurrencies based on market capitalization. Recent discussions about an XRP ETF have stirred interest in the digital currency, hinting at a potential increase in value if it overcomes regulatory challenges.
While the final resolution of the battle between Ripple and the SEC is uncertain, recent developments suggest that the SEC may not object to Judge Analisa Torres’s ruling that XRP is not a security. If this scenario occurs, XRP could increase in value.
Itadori
According to Cryptopolitan
