Press Release

Ripple Wins Clouds XRP’s Security Status In Court

Ripple prevails in significant litigation; however, XRP’s security status remains uncertain due to inconsistent decisions; one claim is valued at $174.

TakeAway Points:

  • Ripple avoided large damages by winning a big class action lawsuit. The judge made a suggestion that XRP might be a security.
  • Conflicting court rulings on XRP’s status highlight ongoing regulatory uncertainty in the U.S. crypto industry.
  • Up until decisions from higher courts or congressional action, it is still unclear from a legal standpoint whether cryptocurrencies constitute securities.

Ripple’s Win in Court

Ripple recently achieved a significant legal win in a class action securities lawsuit, with Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California dismissing most of the claims against the company. The lawsuit, which included two certified classes of investors who purchased XRP over a six-year period, was reduced to a single state law claim against Ripple and its CEO, Brad Garlinghouse. 

This remaining claim, concerning “misleading statements” made by Garlinghouse in a 2017 interview, is valued at a mere $174, a negligible amount for a company estimated to be worth $11 billion. Ripple celebrated this outcome, as it shielded the firm from potentially enormous damages.

Conflicting Judicial Opinions

According to the report, despite the favorable ruling, Judge Hamilton’s decision introduced ambiguity by suggesting that XRP might be a security, diverging from a previous ruling by District Judge Analisa Torres of New York’s Southern District. Torres had ruled that XRP was only a security when sold to institutional investors, a decision that was seen as a step towards regulatory clarity for the crypto industry. 

Hamilton’s ruling, however, does not overturn Torres’ decision but adds another layer of complexity by providing an alternative precedent for those who argue that XRP and other cryptocurrencies are securities. This conflicting judicial opinion underscores the broader issue of legal and regulatory uncertainty in the U.S. crypto market.

Ongoing Legal and Regulatory Uncertainty

The report states that the lack of consensus among district courts on whether XRP is a security highlights the broader issue of regulatory clarity in the crypto industry. Joseph Castelluccio, a partner at Mayer Brown, noted that Hamilton’s decision to dismiss the class action claims was based on statute of limitations grounds, not on the security status of XRP. For the single claim allowed to proceed, Hamilton applied the Howey Test and found that Ripple’s conduct could lead a reasonable investor to expect profits from the efforts of others, leaving the question of XRP’s security status unresolved.

Ripple’s Chief Legal Officer, Stu Alderoty, emphasized that Hamilton’s ruling does not challenge Torres’ 2023 decision that XRP is not a security under federal law. 

“In SEC’s case Judge Torres ruled under federal law XRP is not itself security. That ruling stands undisturbed cannot now be challenged Judge Hamilton’s courtroom.”

However, the SEC is likely to appeal its case against Ripple and could use Hamilton’s ruling as an alternative precedent. This situation is further complicated by another judge, Jed Rakoff, who also disagreed with Torres’ ruling in a separate case involving Terraform Labs.

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