Ripple Labs, the blockchain company that’s come under fire for its sale of XRP tokens, is facing yet another legal battle as a civil securities lawsuit against its CEO, Brad Garlinghouse, has been given the green light by a California federal court judge.
The lawsuit, which alleges that Garlinghouse made “misleading statements” in a 2017 interview, will now proceed to trial, with a jury set to hear the case.
The lawsuit centers around an interview Garlinghouse gave to Canada’s BNN Bloomberg in 2017, where he stated that he was “very, very long” on XRP. However, the plaintiffs allege that this statement was misleading, as Garlinghouse reportedly sold millions of XRP in the same year.
Last year, Judge Phyllis Hamilton dismissed four allegations related to Ripple’s failure to register XRP as a security. However, the judge allowed the claim about Garlinghouse’s alleged misleading statements to move forward.
This lawsuit is separate from the ongoing legal battle between Ripple and the Securities and Exchange Commission (SEC), which alleges that XRP is a security.
In July 2023, a New York federal court ruled that the sale of XRP on exchanges and through algorithms did not violate U.S. securities laws, but sales to institutions did.
In the California case, Ripple’s lawyers argued that the allegations of misleading statements should be dismissed, as XRP is not a security under the Howey test. They also cited the New York court’s order to bolster their arguments.
However, Judge Hamilton noted that XRP could be considered a security when sold to non-institutional investors, as they would have expected profits from Ripple’s efforts.
“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,” the judge wrote in a filing.
