- Ripple Labs is once again at the center of a legal controversy over the sale of XRP tokens.
- This latest development involves a civil securities lawsuit against Ripple’s CEO, Brad Garlinghouse.
- The lawsuit will proceed to trial, following allegations of misleading statements made by Garlinghouse in a 2017 interview.
Ripple Labs faces another court battle centered on the alleged misleading statements by CEO Brad Garlinghouse concerning XRP sales in 2017.
California Federal Court Approves Civil Securities Lawsuit Against Garlinghouse
The legal troubles for Ripple Labs have intensified as a California federal court judge has allowed a civil securities lawsuit against CEO Brad Garlinghouse to proceed. The lawsuit claims that Garlinghouse made misleading comments regarding his stance on XRP during an interview with BNN Bloomberg in 2017. Despite asserting he was “very, very long” on XRP, Garlinghouse is accused of selling millions of XRP that same year.
Historical Context and Previous Legal Decisions
Previously, Judge Phyllis Hamilton dismissed several claims related to Ripple’s failure to register XRP as a security. Meanwhile, the lawsuit contends that Garlinghouse’s statements misled investors. This case is distinct from the ongoing SEC lawsuit against Ripple, which designates XRP as a security. In a separate ruling by a New York federal court in July 2023, XRP sales on exchanges were not deemed to violate U.S. securities laws, but institutional sales were found to be in breach.
The Howey Test and Its Implications
Defense attorneys for Ripple argued that, according to the Howey Test, XRP should not be classified as a security. They leveraged the recent New York court ruling to argue their case. However, Judge Hamilton indicated that when XRP is sold to non-institutional investors, it could indeed be considered a security. The distinction lies in the investors’ expectations of profits based on Ripple’s operational efforts rather than general market trends.
Conclusion
The implications of this lawsuit are significant for Ripple Labs and the broader cryptocurrency market. As the trial proceeds, the court’s interpretation of XRP’s status as a security—or lack thereof—will shape regulatory approaches and investor expectations in the crypto space. Stakeholders in the cryptocurrency community will be closely monitoring the developments to gauge future legal and financial outcomes.
