On June 20, Ripple Labs Inc. won a crucial victory in its ongoing legal challenges, specifically in the federal class action lawsuit filed in the Northern District of California. THE case (4:18-cv-06753-PJH)presided over by Judge Phyllis J. Hamilton, has been closely watched by the XRP community due to its potential implications for the digital asset’s classification under U.S. securities law.
Here’s what the decision means for XRP
Judge Hamilton’s ruling granted Ripple’s motion for summary judgment, dismissing federal and state class claims that XRP was sold as an unregistered security. Fred Rispoli, a pro-XRP lawyer, explain the importance of this via social media: “Win for Ripple in the Oakland class action. Judge grants Ripple’s motion for summary judgment on federal class claims for unregistered securities as well as securities claims under state law. But these were procedural victories.
Although Ripple successfully dismissed the class action lawsuits, the court refrained from making a final legal decision on whether XRP constitutes a security. Instead, it was stated that it was up to a jury to decide whether XRP satisfied all three prongs of the Howey test, which determines what constitutes a security under US law.
This leaves a substantial portion of Ripple’s legal battle unresolved, as Rispoli noted: “The class action is now concluded at the district court level. However, as to whether XRP is a security, the Court held that it was up to the jury to decide whether all three prongs of the Howey test are met.”
Rispoli added: “This claim, an individual plaintiff’s claim, will go to trial but, in all likelihood, will be settled given the extremely low damages and very poor jury verdict that could result if the plaintiff wins.” To summarize: the court says that whether XRP is a security in the context of retail buyers on an exchange is a matter for the jury, not a question of law.
The opinion drew varied responses from other legal experts. Marc Fagel, another crypto industry lawyer, pointed out a contradiction with another decision, suggesting complexities in the legal interpretation of digital assets: “Just read the opinion. Directly contradicted Torres on programmatic sales (it would have been more interesting if the court had gone further and concluded that these were securities sales under the statute rather than going to the jury).
Although Ripple achieved a procedural victory, uncertainty over the classification of XRP continues to cast a shadow. Rispoli’s comments highlight the limited scope of the decision: “Unfortunately, it depends. XRP (via Judge Torres) only has legal clarity (1) because it involves the SEC making allegations of federal securities violations and (2) in the Southern District of New York, other courts can ignore in non-SEC cases.
The dismissal of the class action lawsuit against Ripple provides a momentary reprieve for the company, but the overarching legal questions surrounding XRP and its potential security status remain unanswered. The jury’s next decision on applying the Howey test to XRP will be crucial.
As Rispoli summarizes, the broader issue at play is the need for federal legislation to address the regulatory treatment of cryptocurrencies: “Ultimately, the crypto world needs to keep up the pressure for federal legislation, as we are on track for XRP to become a security in California. but not in New York.
In-depth review of the decision
The lawsuit involves class action lawsuits against Ripple Labs Inc., its subsidiary XRP II, LLC, and Ripple’s CEO. Bradley Garlinghouse. The suit centers on allegations related to the sale and marketing of XRP, a digital asset that the plaintiffs allege was offered and sold as an unregistered security.
The main issues in the dispute are whether XRP should be considered a security under US law and, therefore, whether Ripple’s actions in selling XRP to the public violated securities laws. This case resulted in various legal maneuvers, including motions for class certification, which were granted, allowing the case to proceed as a class action. This means that people who purchased XRP during a specified period and suffered a financial loss can be collectively represented.
In her decision, Judge Phyllis J. Hamilton made several key decisions.
Points in favor of Ripple:
- Federal Claims Dismissed: The court applied the “first offering” rule under the statute of repose, finding that federal securities claims related to the unregistered offering and sale of XRP were barred because the offering had took place more than three years before the start of the trial.
- State Claims Dismissed: Like the federal claims, the state’s claims for failure to register XRP as collateral were dismissed. The court found that the plaintiff had not adequately demonstrated his relationship, a necessary element for these claims under California law.
- Collective complaints rejected: The court dismissed all class claims regarding the federal and state allegations, significantly narrowing the scope of the lawsuit against Ripple.
Ripple Points Lost:
- Misleading claims claiming the product: The court denied Ripple’s motion for summary judgment regarding the individual complaint against CEO Garlinghouse for making allegedly misleading statements about his investment in XRP. This claim will be the subject of a trial, which will focus on whether Garlinghouse’s statements influenced investors’ expectations and investment decisions.
At press time, XRP was trading at $0.4890.
Featured image created with DALL·E, chart from TradingView.com
