Ripple Battles the Securities Lawsuit in California Over CEO’s Alleged Misleading Statement

Judge Phyllis Hamilton of the California District Court has endorsed a lawsuit against Ripple over Brad Garlinghouse's statement.

The court denied Ripple's summary judgment motion in the suit, alleging the firm's CEO, Garlinghouse, violated California securities laws. This allegation stems from Garlinghouse's supposed misleading statements in a BNN Bloomberg interview in 2017.

Jury to Decide Whether Ripple CEO's Statement is Misleading

In the June 20 order, Judge Hamilton found that retail XRP sales could be securities contracts. Moreover, Ripple will appear before a jury to determine whether its CEO's 2017 statements were misleading.

The lawsuit highlighted five central claims, four of which revolve around Ripple's failure to register XRP as a security under federal and state laws.

One of the claims specifically mentioned a violation of California Corporate Code 25501 against Bradley Garlinghouse for misleading statements connected to XRP sales.

In a December 2017 interview with Canada's BNN Bloomberg, Ripple's Garlinghouse remarked on his long position on XRP. He said he was very long" on XRP, implying he has held a more significant percentage of his XRP coins for a long time.

However, the lawsuit alleged that Garlinghouse's statement about his XRP HODLing was false, as the CEO sold millions of XRP tokens throughout 2017.

Meanwhile, Ripple's CLO Stuart Alderoty said they are happy the court dismissed other class action claims. According to the legal officer, Ripple only has to worry about the state claim they will deal with at trial.

Federal Judge Found XRP Could Be a Security

In the latest court order, Judge Hamilton pointed out that Ripple wanted the court to dismiss the misleading statement claim. Ripple argued that XRP is not a security following the Howey test, as determined by Judge Torres' July 2023 ruling in the SEC lawsuit.

However, the Judge dismissed Ripple's argument in her order, citing that XRP could be a security when sold to retail investors.

According to Judge Hamilton, reasonable retail investors would expect profits from Ripple's efforts to promote XRP for cross-border payments. That is one of the determinants in the Howey test.

Despite Judge Hamilton's dismissal, Ripple's CLO Alderoty maintained that Judge Torres's ruling in the SEC lawsuit stands undisputed. The verdict remains a landmark in the crypto industry, and to many, it sets the precedent for similar cryptocurrency cases.

However, contrary to the expectations of crypto enthusiasts, Judge Torres's ruling doesn't hold as much water. In the SEC lawsuit against Terraform Labs, Judge Jed Rakoff disputed the ruling when Terraform Labs cited it in its motion for dismissal.

In August 2023, Judge Rakoff rejected the July 13 ruling that favors Ripple's XRP as a non-security when sold on secondary markets.Despite citing the Ripple/SEC landmark ruling, Terraform Labs lost the case to the SEC and paid a $4.5 billion fine for settlement.

With the Ripple/SEC summary judgment still underway and other federal judges denying the landmark ruling, XRP's status as a non-security remains uncertain.

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