Judge Phyllis Hamilton found XRP could be a security when sold to retail and gave the go-ahead to a lawsuit over statements from Ripple CEO Brad Garlinghouse.
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.
California District Court Judge Phyllis Hamilton’s June 20 order 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 — but the suit alleges that was false as he “sold millions of XRP” throughout that year.
Transcript of Garlinghouse’s alleged misleading 2017 statement. Source: CourtListener
“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, Judge Hamilton noted Ripple had argued the “misleading statement” claim should be thrown out, as XRP is not a security under the Howey test — noting a landmark ruling in July 2023 by Judge Analisa Torres in a Securities and Exchange Commission lawsuit.
However, Judge Hamilton disagreed in her recent order 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, 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,” Judge Hamilton wrote.
Ripple’s Alderoty said, “The ruling from Judge Torres in the SEC case still stands and nothing here disturbs that decision.”
Many in the U.S. crypto industry hailed Judge Torres’ ruling as a huge win for the space lat year, 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 Judge 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 with the SEC.