Ripple Labs notched a significant victory in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC) as a California court dismissed key parts of a related class action lawsuit. However, the dispute over whether XRP, Ripple’s digital token, constitutes a security is far from over.
Major Claims Dismissed
Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California granted Ripple’s motion for summary judgment on federal claims alleging unregistered securities and state law equivalents. This effectively throws out the bulk of the class-action lawsuit, a major win for the company.
Ripple’s Legal Chief Pleased, But Work Remains
Stuart Alderoty, Ripple’s Chief Legal Officer, hailed the court’s decision, though acknowledged remaining hurdles. “We’re pleased with the court’s ruling,” Alderoty stated, “While the federal and most state claims have been dismissed, we will address the remaining individual state law claim at trial.”
Jury to Decide XRP’s Fate
While a significant victory, the court did not definitively rule on XRP’s status as a security. This crucial question will be decided by a jury, which will determine if XRP satisfies all three elements of the Howey Test, a legal benchmark used to classify investments as securities.
Separate Lawsuit Against CEO Moves Forward
Ripple’s legal troubles aren’t entirely over. The court partially denied Ripple’s motion to dismiss a separate civil lawsuit against CEO Brad Garlinghouse. The plaintiff alleges Garlinghouse misrepresented his XRP holdings while selling millions of tokens in 2017. This case will proceed to trial.
Settlement Likely, Legal Uncertainty Persists
Legal experts like Fred Rispoli believe a settlement between Ripple Labs and the SEC is probable due to minimal potential damages and the risk of a negative jury verdict for Ripple Labs. However, Rispoli emphasizes the need for federal legislation to settle the broader question of XRP’s classification.
Ripple Labs Argues Against Howey Test Application
Ripple maintains that XRP does not fit the definition of a security under the Howey Test. Judge Hamilton ruled the case necessitates a trial as it’s unclear whether Ripple’s actions led investors to expect profits based solely on Ripple’s efforts.
Sealing of Documents Under Review
Both parties submitted unredacted legal briefs and requested an extension to file a motion to seal specific exhibits. The court granted the extension, setting a new deadline of July 8, 2024, for a revised sealing motion which will be addressed in a separate order.
Differing Court Opinions on XRP
This ruling contrasts with a decision by Judge Analisa Torres in the Southern District of New York, who previously found that XRP wasn’t a security when sold to retail investors.
The outcome of the SEC lawsuit and the Garlinghouse case will have significant implications for Ripple Labs and the broader cryptocurrency industry. Whether XRP is ultimately deemed a security will impact regulations and market dynamics for digital assets.
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