Ripple CEO Lawsuit: California Judge Rules that Garlinghouse Will Proceed to Trial

A California judge ruled that the Ripple CEO lawsuit would proceed to trial, partially denying the crypto firm’s motion for summary judgment. The lawsuit alleges Ripple’s CEO, Brad Garlinghouse, violated state securities laws in 2017.

A jury will now hear arguments on whether Ripple CEO Brad Garlinghouse made “misleading statements” in connection with the sale of securities during a 2017 televised interview. Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California dismissed the other four claims in the class action securities lawsuit based on the so-called “failure to register claims.”

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

Ripple CEO Lawsuit Allegations 

The plaintiff in the Ripple CEO lawsuit alleges that Garlinghouse violated California’s securities laws by claiming to be “very, very long XRP” while simultaneously selling “millions of XRP on various cryptocurrency exchanges” throughout 2017. According to the plaintiff, this contradictory behaviour misled investors about Garlinghouse’s true stance on XRP.

Ripple’s legal team contended that the claim should be dismissed because XRP does not meet the definition of security under the Howey Test and, therefore, cannot give rise to a claim for misleading statements in connection with security.

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

Judge Torres’ ruling on the Ripple CEO lawsuit was seen as a partial victory for Ripple and celebrated by many in the crypto industry as a step towards regulatory clarity. It also set a potential precedent for other crypto securities cases. However, Judge Torres’ ruling has not had the widespread influence that some had hoped. Last year, Judge Jed Rakoff, also in the SDNY, rejected her ruling in a separate case brought by the U.S. Securities and Exchange Commission (SEC) against Singaporean crypto firm Terraform Labs.

In her ruling, Judge Hamilton also diverged from Judge Torres’ legal opinion that XRP sold to “programmatic” (non-institutional) traders was not a security. According to Judge Torres, these traders did not expect profits based on the efforts of others, which is one of the four prongs of the Howey Test. However, Judge Hamilton did not follow this reasoning, keeping the possibility open for the trial to explore whether Garlinghouse’s statements were indeed misleading under California securities law.

Implications for Ripple and the Crypto Industry

The continuation of the Ripple CEO lawsuit underscores securities law’s complexities and evolving nature as it applies to cryptocurrencies. The case will likely set significant precedents for regulating crypto assets and how executives’ statements are interpreted under securities laws.

As the trial approaches, the crypto community will be watching closely. Ripple’s efforts to establish that XRP is not a security will be pivotal not just for the company but for the broader industry, which strives for clarity and fairness in regulatory practices. Stay plugged into The BIT Journal for more developments on the Ripple CEO lawsuit