California judge dismisses class action lawsuit against Ripple, but gives green light for individual case to be heard

A California judge has dismissed a series of class action lawsuits against Ripple related to the sale of XRP, but has allowed an individual case to go to court.

Bradley Sostack, a former XRP investor, filed a class action lawsuit back in 2018 claiming that Ripple illegally sold XRP as an unregistered security and violated California’s advertising laws.

District Judge Phyllis J. Hamilton dismissed both federal and state class action lawsuits alleging that Ripple violated securities laws.

However, Sostack also brought an isolated case, alleging that Ripple CEO Brad Garlinghouse made a misleading statement “in connection with the offer or sale of securities under the laws of the State of California,” according to a recent case document.

In a December 2017 interview on Business News Network, Garlinghouse said he was “very, very long on XRP” and was on the “HODL side” of the asset. Sostack claims these statements are false, alleging that the Ripple CEO sold millions of XRP to crypto exchanges this year.

Judge Hamilton said in her ruling that Sostack’s individual claim revolves around the Howey test, a legal criterion often used to determine whether or not a transaction qualifies as an investment contract.

According to the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a joint enterprise with the expectation of profits solely through the efforts of the promoter or a third party.”

Hamilton explains,

“Overall, given the relative newness of cryptocurrency and the absence of any governing law regarding the motivation of a reasonable cryptocurrency investor, the Court declines to find that a reasonable investor would have derived any expectation of profit from general cryptocurrency market trends, as opposed to Ripple’s efforts to facilitate the use of XRP for, among other things, cross-border payments.

Accordingly, the (court) cannot find as a matter of law that Ripple’s conduct would not have led a reasonable investor to expect profits from the efforts of others. Because, as noted above, Defendants have not raised any further argument for summary judgment on Plaintiff’s fourth cause of action for making misleading statements in connection with the offer or sale of a security, summary judgment on this cause of action is DENIED and the action will proceed to trial.”

The classification of XRP became a major topic of public debate when the U.S. Securities and Exchange Commission (SEC) sued Ripple in late 2020 for allegedly selling the asset as an unregistered security.

Last year, U.S. District Judge Analisa Torres ruled that the payments company’s automated XRP sales on the open market did not constitute securities offerings, contrary to the SEC’s assertion.

However, the judge agreed with the SEC’s assertion that Ripple’s direct XRP sales to institutional buyers constituted securities offerings.

Garlinghouse says Hamilton’s ruling was a “huge victory” for the company and argues her decision neither overturns nor changes the outcome of the SEC case.

“The California ruling dismissed all allegations that Ripple had in any way violated federal securities law by selling XRP.

As for the single state law claim now set for trial, the sole plaintiff did not purchase XRP directly from Ripple and cannot say if he even heard the testimony before acting, and only owned a few hundred XRP. This was a clear example of the trolls unsuccessfully attempting to exploit the U.S. legal system and twist testimony to seek hundreds of millions in class action lawsuits.

And finally, on any “misleading statements” I stand by my statement and look forward to shedding light on the matter during the trial.”

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