California Judge Breaks With New York Counterpart, Sends Ripple Securities Lawsuit to Trial

U.S. District Court Judge Phyllis Hamilton dismissed all four of the class action claims against Ripple but will allow one state law claim to proceed to trial.

A California judge has ruled that a civil securities lawsuit against Ripple will proceed to a jury trial, largely denying the crypto firm’s motion for summary judgment in a suit alleging that Ripple’s CEO violated state securities laws in 2017.

The class action securities lawsuit, filed in 2018 by XRP holder Vladimirov Vadim, alleges that Ripple CEO Brad Garlinghouse and the company engaged in misleading XRP sales practices and failed to register XRP as a security with the state of California.

The lawsuit also alleges that Garlinghouse made “misleading statements” in connection with the sale of securities in a 2017 televised interview on Fox Business. The plaintiff has alleged that Garlinghouse violated California’s securities laws by professing to be “very, very long XRP” while simultaneously selling “millions of XRP on various cryptocurrency exchanges” throughout 2017.

U.S. District Judge Phyllis Hamilton of the Northern District of California on Thursday dismissed all four of the class action claims but will allow one state law claim to proceed to trial. The dismissed claims are the so-called “failure to register claims.”

“We are pleased that the California court dismissed all class action claims,” said Ripple’s Chief Legal Officer Stu Alderoty in an emailed statement. “The one individual state law claim that survived will be dealt with at trial.”

A jury will hear arguments on the remaining claim, which alleges that Garlinghouse made the misleading statements during the Fox Business interview.

“The court finds that a reasonable jury could conclude that Garlinghouse's statements on Fox Business were connected to XRP sales in California,” Hamilton wrote in her Thursday order.

“The court further finds that a reasonable jury could conclude that Garlinghouse's statements on Fox Business were misleading,” the order continues. “Specifically, a reasonable jury could conclude that Garlinghouse's statements on Fox Business created the misleading impression that he personally held XRP for the long term, despite selling XRP throughout 2017.”

According to court documents, Ripple's lawyers argued that the claim should be tossed because XRP doesn’t 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.”

In her Thursday ruling, Hamilton said that Ripple’s lawyers urged her to “follow the reasoning” of U.S. District Court Judge Analisa Torres who, in a parallel case in the Southern District of New York (SDNY), ruled that XRP did not meet all the prongs of the Howey Test when sold directly to retail participants on crypto exchanges.

“The court declines to follow Judge Torres's analysis on this point,” Hamilton wrote.

Torres’ ruling constituted a partial victory for Ripple, and was celebrated by many in the crypto industry as a step in the right direction for long-awaited regulatory clarity, as well as a potential precedent for other crypto securities cases. But Torres’ ruling hasn’t seemed to have as much sway as hopefuls once thought it might. Last year, Torres’ colleague in the SDNY, District Judge Jed Rakoff, rejected her ruling in a separate case brought by the U.S. Securities and Exchange Commission (SEC) against Singaporean crypto firm Terraform Labs.

Hamilton, in her Thursday ruling, also broke with Torres’ legal opinion that that XRP sold to “programmatic” (meaning 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.

“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.”

In his statement, Alderoty added that Torres’ ruling in the SEC case “still stands.”

“Nothing here disturbs that decision,” Alderoty wrote.

News source：https://www.kdj.com/cryptocurrencies-news/articles/california-judge-breaks-york-counterpart-sends-ripple-securities-lawsuit-trial.html

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