Focus on Ripple’s legal battle shifts to CEO’s XRP 2017 comments

A US federal court judge has allowed a civil securities lawsuit against Ripple Labs to proceed.

That decision came after California District Court Judge Phyllis Hamilton denied Ripple’s request for summary judgment in a case involving allegations that its CEO, Brad Garlinghouse, violated California securities laws .

“Misleading Statements” in XRP

The allegations center around claims that the executive made “misleading statements” about the state of XRP during a televised interview while at the same time expressing skepticism about the usefulness of other digital assets.

The official court document said this statement was shared on Ripple’s official Twitter account, amplifying its reach.

The plaintiff argued that Garlinghouse’s statement was misleading and claimed that the executive had been selling millions of XRP throughout 2017 on various cryptocurrency exchanges despite publicly announcing that he remains “very, very, very long XRP” and their intention to “keep” the asset.

“I’m long XRP, I’m very, very long XRP as a percentage of my personal balance sheet. . . . (I’m not) long some of the other (digital) assets, because it’s not clear to me what the real utility is, what the problem is are really solving a problem, if it’s a problem at scale, then I think you’ve been very fortunate to continue to do so, obviously, for a long time , there is an expression in the industry HODL, it’s HODL .

Court ruling challenges XRP’s status for non-institutional investors

Judge Hamilton’s ruling addressed Ripple’s argument that the “misrepresentation” claim should be dismissed as XRP does not meet the security criteria under the Howey test. The blockchain firm had cited Judge Analisa Torres’ decision from July 2023 in its lawsuit against the Securities and Exchange Commission.

However, Hamilton took a different stance in his recent order and instead determined that XRP could be classified as a security when sold to individual investors, as opposed to institutional investors.

As noted in the filing, he reasoned that these non-institutional investors would have anticipated benefits from Ripple’s efforts, which is one of the important factors considered in the Howey test to determine whether an asset qualifies as a security.

“Overall, given the relative newness of cryptocurrency and the lack of any controlling law on the motivation of a reasonable investor in cryptocurrency, the court declines to find as a matter of law that a reasonable investor would have obtained any expectation of benefit of the general cryptocurrency market trends, as opposed to Ripple’s efforts to facilitate the use of XRP in cross-border payments, among other things

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