According to CoinDesk, Ripple CEO Brad Garlinghouse is set to face trial in California over a civil securities lawsuit. The case alleges that Garlinghouse violated state securities laws in 2017. The court has dismissed several other claims made in the lawsuit, but the jury will hear arguments on whether Garlinghouse made misleading statements in connection with the sale of securities during a 2017 televised interview.
The plaintiff alleges that Garlinghouse claimed to be 'very, very long XRP' while simultaneously selling millions of XRP on various cryptocurrency exchanges throughout 2017. Ripple's lawyers argued that the claim should be dismissed as XRP does not 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.
Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California, in her ruling, stated that Ripple's lawyers urged her to follow the reasoning of U.S. District Court Judge Analisa Torres. In a parallel case in the Southern District of New York, Torres ruled that XRP did not meet all the prongs of the Howey Test when sold directly to retail participants on crypto exchanges.
However, Hamilton declined to follow Torres' legal opinion that XRP sold to 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. Hamilton wrote, '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’s Chief Legal Officer Stu Alderoty stated that the California court dismissed all class action claims and the one individual state law claim that survived will be dealt with at trial. He added that Torres’ ruling in the SEC case 'still stands' and 'nothing here disturbs that decision.'