Ripple, the blockchain firm at the center of XRP cryptocurrency, is embroiled in a fresh legal battle. This follows after a federal judge approved a civil securities lawsuit against the firm alleging its CEO violated California securities laws. The decision has effectively dashed Ripple’s hopes for a swift resolution in its ongoing tussle with the SEC.
In an order dated June 20, Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California announced that the jury will decide if Ripple CEO Brad Garlinghouse made “misleading statements” on Canada’s BNN Bloomberg in 2017. In that interview, Garlinghouse claimed that he was “very, very long” on XRP.
The lawsuit could spell trouble for the top exec as it contends that he “sold millions of XRP” throughout that year. While the California court dismissed all class action claims against the firm, offering some respite, the individual state law claim would proceed to trial, Ripple’s chief legal officer, Stu Alderoty, confirmed.
Additionally, Judge Hamilton rejected Ripple’s defense to dismiss claims related to the sale of XRP to retail investors. This argument has previously led to the landmark ruling in July 2023 by Judge Analisa Torres. However, Judge Hamilton found that XRP could be considered a security when sold to non-institutional investors, who likely expected profits from Ripple’s efforts to promote the cryptocurrency.
Ripple’s Battle Rages On
Hamilton’s order highlighted that a reasonable investor might not solely base their profit expectations on general market trends but rather on the firm’s actions to enhance XRP’s utility in cross-border payments and other applications. This critical interpretation aligns with the markers used in the Howey test, which determines whether a transaction qualifies as an investment contract.
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.
Ripple has been engaged in a long contentious battle with the regulators since 2020 when the SEC accused the blockchain firm of offering XRP as an unregistered security. While the court ruled that XRP itself was not a security, it found the offering to institutional investors did violate federal law. However, the recent legal development indicates that the firm’s regulatory struggles are far from over.