A United States federal court judge has greenlit a civil securities lawsuit against Ripple Labs, denying its summary judgment bid in a suit alleging its CEO broke California securities laws.
The June 20 order by Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California means a jury will decide if Ripple boss Brad Garlinghouse made “misleading statements” in a 2017 interview. The order has thrown out four allegations around Ripple’s “failure to register XRP as a security.”
In the 2017 interview on Canada’s BNN Bloomberg, Garlinghouse said he was “very, very long” on XRP (XRP) — but the suit alleges that was false as he “sold millions of XRP” throughout that year.
“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,” Ripple’s chief legal officer, Stu Alderoty, said in an emailed statement to Cointelegraph.
In her order, Hamilton noted Ripple had argued the “misleading statement” claim should be thrown out, as XRP is not a security under the Howey test — citing a landmark ruling in July 2023 by Judge Analisa Torres in the lawsuit between the U.S. Securities and Exchange Commission and Ripple.
However, Hamilton disagreed and instead found XRP could be a security when sold to non-institutional investors. She said they would have expected profits from Ripple’s efforts, which is one of the markers used in the Howey test.
“The court declines to find as a matter of law that a reasonable investor would have derived any expectation of profit from general cryptocurrency market trends, as opposed to Ripple’s efforts to facilitate XRP’s use in cross-border payments, among other things.”
“Accordingly, the [court] cannot find as a matter of law that Ripple’s conduct would not have led a reasonable investor to have an expectation of profit due to the efforts of others,” Hamilton wrote.
Ripple’s Alderoty said, “The ruling from Judge Torres in the SEC case still stands and nothing here disturbs that decision.”
Related: SEC shoots down Ripple’s argument for a lower penalty
Many in the U.S. crypto industry hailed Torres’ ruling as a huge win for the space in 2023, believing other judges would use it as precedent when weighing other crypto cases.
But it isn’t having as big of an impact as hoped.
In the SEC’s case against Terraform Labs, presiding Judge Jed Rakoff — from the same courthouse as Torres — disagreed with the Ripple ruling in rejecting Terraform’s dismissal motion in August.
Terraform went on to lose that case, having to pay a $4.5 billion settlement to the SEC.
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Update (June 21, 3:50 am UTC): This article has been updated to add comments from Ripple’s Stu Alderoty.