Yesterday, payment company Ripple Labs and its CEO Brad Garlinghouse will face a civil lawsuit in California for allegedly violating securities laws due to their "bullish remarks on XRP" in a 2017 interview. At this point, Judge Hamilton raised a reason why XRP might be considered a security.
Ripple CEO calls for legal action: I am very optimistic about XRP
Court documents on June 20 showed that U.S. California federal court judge Phyllis Hamilton dismissed four class action claims against Ripple, but approved another civil lawsuit against Ripple Labs and its CEO Brad Garlinghouse, allowing it to enter the trial stage. .
It is reported that the lawsuit accuses Garlinghouse of making "misleading statements" in an interview with Canada's BNN Bloomberg in 2017, claiming that he was "quite bullish on XRP":
I am very bullish on XRP and hold a large amount of XRP on my personal balance sheet, there is a saying in this industry called HODL and I am on this side.
However, the fact is that he sold millions of XRP through exchanges that year.
At the time, Ripple's attorneys filed a request for summary judgment, arguing that the claim should be dismissed:
Since XRP does not meet the definition of a security under the Howey test, a claim cannot be made for misleading statements relating to a security.
Judge: Investors’ expectation to profit from Ripple complies with the Howey Test
In this regard, Judge Hamilton ruled against it yesterday, holding that according to the Howey Test to assess whether crypto assets are securities, XRP may fall into the category of securities when it involves sales to non-institutional investors:
The court declined to find as a matter of law any expectation of profits that reasonable investors would derive from general cryptocurrency market trends other than Ripple’s efforts to promote XRP in cross-border payments.
In other words, the judge held that “investors expect profits from XRP not because of the overall movement of the crypto market, but because of Ripple’s specific efforts to promote XRP adoption:
Therefore, even if Judge Torres made a ruling in July last year that was widely considered a victory for the crypto industry, it cannot be purely legally determined that Ripple’s words and deeds will not lead to investors’ expectations of profit based on these efforts.
(Ripple wins the lawsuit? SEC kicks the bucket! XRP is not a securities, non-investment contract, and the currency circle wins the first regulatory victory?)
Ripple responds: Previous ruling remains valid
Stu Alderoty, Ripple’s legal director, first expressed his gratitude to the court for rejecting all class actions and declared that the two judges’ ideas were independent:
Judge Torres' previous ruling in the SEC case remains in effect, and this ruling does not shake that decision.
Previously, Lian News’ in-depth analysis of the Ripple case mentioned that the company’s initial victory in this lawsuit was not a complete victory. Even most issuers in the currency circle were involved in behaviors such as institutional sales of XRP and marketing in the hope of profit. :
The court determined whether XRP met the definition of an investment contract based on the sales situation, regardless of whether XRP had commodity or currency characteristics in nature.
(After reading the XRP court documents, explain in detail the reasons why XRP and the currency circle are not free from securities risks)
Ripple case judge disagrees with TFL case judge
Last July, Judge Torres’s favorable ruling against Ripple was considered a major milestone for the U.S. crypto industry and was cited by other companies in disputes with the SEC. However, some of the effects may not be that significant.
In a previous case between the SEC and Terraform Labs (TFL), TFL also cited the above ruling and requested that the SEC's lawsuit against it be dismissed.
Judge Jed Rakoff dismissed the motion, causing TFL to ultimately lose the case. At the time, Rakoff even questioned the legitimacy of the judge’s decision in the Ripple case:
The judge in this case defined whether the token violated securities laws by whether it was sold through the secondary market. However, this "distinction between purchasers" does not apply under the Howey Test, which does not make such a distinction.
(Want to take a ride on Ripple? A US judge rejects Terraform Labs’ motion to withdraw the lawsuit)
This article: Ripple Labs CEO calls for XRP to be sued, may XRP meet the definition of a security at this time? First appeared in Chain News ABMedia.
