Ripple Labs Faces Trial Over Alleged Misleading Statements by CEO Brad Garlinghouse

Ripple Labs Faces Trial Over Alleged Misleading Statements by CEO Brad Garlinghouse

A crucial lawsuit against Ripple Labs, which involves allegations of misleading statements by CEO Brad Garlinghouse, is moving forward to trial. This decision came after US District Court Judge Phyllis Hamilton denied Ripple’s request for summary judgment on June 20. The case revolves around Garlinghouse’s comments during a 2017 interview, where he declared he was “very, very long” on XRP.

XRP Still Faces Classification Challenges as Securities

Plaintiff Bradley Sostack asserts that Garlinghouse’s statements were deceptive, given that he sold millions of XRP during the same period.

In the 2017 television interview, Garlinghouse said, “I’m long XRP, I’m very, very long XRP as a percentage of my personal balance sheet. . . . . [I am] not long on some of the other [digital] assets, because it is not clear to me what’s the real utility, what problem are they really solving . . . if you’re solving a real problem, if it’s a scaled problem, then I think you have a huge opportunity to continue to grow that. We have been really fortunate obviously, I remain very, very, very long XRP, there is an expression in the industry HODL, instead of hold, it’s HODL… I’m on the HODL side.”

The case, filed in the California District Court, brings serious accusations against Ripple Labs, its subsidiary XRP, and CEO Garlinghouse, including the unregistered offering and sale of securities and making misleading statements related to these sales.

A central issue in the lawsuit is whether XRP should be classified as a “security” under US law, a determination that could significantly affect the regulatory landscape for digital currencies.

Ripple’s defense argues that XRP does not meet the criteria of a security as defined by the Howey test, which is used to identify investment contracts. However, Judge Hamilton’s decision emphasized advancing the case to trial rather than ruling on this argument.

The Court document stated, “The Defendants made no other argument in favor of summary judgment on the plaintiff’s fourth cause of action for misleading statements in connection with the offer or sale of a security, summary judgment on that cause of action is denied and the claim will proceed to trial.”

Despite the Court’s decision, XRP’s price has remained relatively stable, trading at $0.4901, a decrease of about 1.12% over the past 24 hours.

This case stands in contrast to a previous ruling by Judge Analisa Torres of the Southern District of New York. In that case, Judge Torres determined that Ripple’s “Programmatic Sales” and other distributions of XRP did not constitute investment contracts, thus exempting them from certain securities regulations. However, she did rule that Ripple’s Institutional Sales of $728.9 million in XRP were unregistered investment contracts, violating Section 5 of the Securities Act.

The upcoming trial could have significant implications for the broader regulatory environment for digital currencies in the US. It will test the boundaries of US securities law in the context of the crypto market and may establish precedents that will influence how digital assets are marketed and regulated across the industry.