A U.S. federal court judge has ruled that a civil securities lawsuit against Ripple Labs can proceed, denying the company’s bid for summary judgment in a case alleging its CEO, Brad Garlinghouse, violated California securities laws.
On June 20, Judge Phyllis Hamilton ordered that a jury would decide whether Garlinghouse made “misleading statements” during a 2017 interview. The judge dismissed four allegations related to Ripple’s alleged “failure to register XRP as a security.”
In the 2017 interview on Canada’s BNN Bloomberg, Garlinghouse stated he was “very, very long” on XRP, but the lawsuit claims this was misleading because he “sold millions of XRP” throughout that year.
Ripple’s chief legal officer, Stu Alderoty, commented, “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.”
Judge Hamilton noted that Ripple had argued the “misleading statement” claim should be dismissed because XRP is not a security under the Howey test, referencing a ruling in July 2023 by Judge Analisa Torres in the SEC’s lawsuit against Ripple. However, Hamilton disagreed, suggesting that XRP could be considered a security when sold to non-institutional investors, who would have expected profits from Ripple’s efforts, a key marker 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,” 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.”
Alderoty confirmed that Judge Torres’ ruling in the SEC case remains intact and is not affected by this decision.
The ruling by Judge Torres in the SEC case was seen as a major victory for the U.S. crypto industry in 2023, but its impact has been limited. For instance, in the SEC’s case against Terraform Labs, Judge Jed Rakoff from the same courthouse as Torres, rejected Terraform’s dismissal motion, disagreeing with the Ripple ruling. Terraform ultimately lost the case, agreeing to a $4.5 billion settlement with the SEC.
