Judge Phyllis Hamilton found that XRP could be a security when sold at retail, and greenlighted a lawsuit over statements by Ripple CEO Brad Garlinghouse.
Judge Phyllis Hamilton found that XRP could be a security when sold at retail, and greenlighted a lawsuit over statements by Ripple CEO Brad Garlinghouse.
A US federal court judge has granted a civil securities lawsuit against Ripple Labs, declining to offer summary judgment in a suit alleging that its CEO violated California securities laws.
California District Court Judge Phyllis Hamilton's June 20 order means a jury will decide whether Ripple's president, Brad Garlinghouse, made "misleading statements" in an interview in 2017. The order dismissed four allegations about Ripple's "failure to register XRP." As a financial security.”
In a 2017 interview on Canada's BNN Bloomberg, Garlinghouse said he was "very long" in Ripple (XRP) — but the lawsuit claims that was wrong because he "sold millions of XRP" throughout that year.
“We are pleased that the California court dismissed all class action claims,” Ripple chief legal officer Stu Alderotti said in an email statement to Cointelegraph, adding that “the only individual state law claim that survived will be addressed at trial.”
In her order, Judge Hamilton noted that Ripple argued that the “misleading statement” claim should be dismissed because XRP is not a security under the Howey test — pointing to a landmark July 2023 ruling by Judge Analisa Torres in her lawsuit. Securities and Exchange Commission.
However, Judge Hamilton disagreed in her recent order and instead found that XRP can be a security when sold to non-institutional investors. She said they were expecting profits from Ripple's efforts, which is one of the tags used in Howey's test.
“The Court declines to find as a matter of law that an informed investor would have had any expectation of profit from general cryptocurrency market trends, contrary to Ripple’s efforts to facilitate the use of (XRP) in cross-border payments, among other things.”
“Accordingly, the court cannot find as a matter of law that Ripple’s conduct would not have led an informed investor to expect a profit due to the efforts of others,” Judge Hamilton wrote.
For his part, Ripple’s Aldrote said: “Judge Torres’ ruling in the SEC case still stands and nothing here disturbs this decision.”
Many in the US cryptocurrency industry hailed Judge Torres' ruling as a major win for the cryptocurrency space last year, believing that other judges would use it as a precedent when considering other cryptocurrency cases.
But it is not showing as much impact as hoped.
In SEC v. Terraform Labs, Chief Justice Jed Rakoff — of the same court as Judge Torres — disagreed with Ripple's ruling in denying Terraform's motion to dismiss in August.
Terraform went on to lose that case, having to pay a $4.5 billion settlement with the SEC.
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