California Judge Breaks With New York Counterpart, Sends Ripple Securities Lawsuit to Trial

A
California
judge
has
ruled
that
a
civil
securities
lawsuit
against
Ripple
will
proceed
to
trial,
denying
in
part
the
crypto
firm’s
motion
for
summary
judgment
in
a
suit
alleging
that
Ripple’s
CEO
violated
state
securities
laws
in
2017.

A
jury
will
hear
arguments
on
whether
Ripple
CEO
Brad
Garlinghouse
made
“misleading
statements”
in
connection
with
the
sale
of
securities
in
a
2017
televised
interview.
The
other
four
claims
in
the
class
action
securities
lawsuit
–
the
so-called
“failure
to
register
claims”
–
were
tossed
out
on
Thursday
by
Judge
Phyllis
Hamilton
of
the
U.S.
District
Court
for
the
Northern
District
of
California.

“We
are
pleased
that
the
California
court
dismissed
all
class
action
claims.
The
one
individual
state
law
claim
that
survived
will
be
dealt
with
at
trial,”
said
Ripple’s
Chief
Legal
Officer
Stu
Alderoty
in
an
emailed
statement.

The
plaintiff
has
alleged
that
Garlinghouse
violated
California’s
securities
laws
by
professing
to
be
“very,
very
long
XRP”
while
simultaneously
selling
“millions
of
XRP
on
various
cryptocurrency
exchanges”
throughout
2017.

According
to
court
documents,
Ripple’s
lawyers
argued
that
the
claim
should
be
tossed
because
XRP
doesn’t
meet
the
definition
of
a
security
under
the
Howey
Test
and
“thus
cannot
give
rise
to
a
claim
for
misleading
statements
in
connection
with
a
security.”

In

her
Thursday
ruling,
Hamilton
said
that
Ripple’s
lawyers
urged
her
to
“follow
the
reasoning”
of
U.S.
District
Court
Judge
Analisa
Torres
who,
in
a
parallel
case
in
the
Southern
District
of
New
York
(SDNY),
ruled
that
XRP
did
not
meet
all
the
prongs
of
the
Howey
Test
when
sold
directly
to
retail
participants
on
crypto
exchanges.

Torres’
ruling
constituted
a
partial
victory
for
Ripple,
and
was

celebrated
by
many
in
the
crypto
industry
as
a
step
in
the
right
direction
for
long-awaited
regulatory
clarity,
as
well
as
a
potential
precedent
for
other
crypto
securities
cases.
But
Torres’
ruling
hasn’t
seemed
to
have
as
much
sway
as
hopefuls
once
thought
it
might.
Last
year,
Torres’
colleague
in
the
SDNY,
District
Judge
Jed
Rakoff,
rejected
her
ruling
in
a
separate
case
brought
by
the
U.S.
Securities
and
Exchange
Commission
(SEC)
against
Singaporean
crypto
firm
Terraform
Labs.

Hamilton,
in
her
Thursday
ruling,
also
broke
with
Torres’
legal
opinion
that
that
XRP
sold
to
“programmatic”
(meaning
non-institutional)
traders
was
not
a
security
because
those
traders
had
no
expectation
of
profits
due
to
the
efforts
of
others,
one
of
the
four
prongs
of
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,”
Hamilton
wrote.
“Accordingly,
the
[court]
cannot
find
as
a
matter
of
law
that
Ripple’s
conduct
would
not
have
led
a
reasonable
investor
to
have
an
expectation
of
profit
due
to
the
efforts
of
others.”

In
his
statement,
Alderoty
added
that
Torres’
ruling
in
the
SEC
case
“still
stands.”

“Nothing
here
disturbs
that
decision,”
Alderoty
wrote.