Why is Ripple Labs being sued now?

As a researcher with a background in finance and law, I have been closely following the developments at Ripple Labs and their ongoing legal battle with the SEC. The recent turn of events, where a judge has allowed a part of a civil securities lawsuit to proceed against Ripple Labs, is just another chapter in this long-running saga.

Executives from Ripple Labs have taken to Twitter to publicly criticize the Securities and Exchange Commission (SEC). They assert that SEC Chairman Gary Gensler’s actions could negatively impact President Joe Biden’s re-election campaign.

The legal headaches at Ripple Labs just keep on coming.

A California judge has decided that a portion of a civil securities case against Ripple, with Brad Garlinghouse as the CEO being in question, will proceed. The controversy hinges on the meaning of four specific words spoken by Garlinghouse.

In an interview on television seven years ago, the entrepreneur expressed his strong belief and commitment towards XRP by saying, “I have been extremely bullish about XRP for a long time.”

A displeased investor contends that Garlinghouse’s statement was misleading, given his sale of millions of dollars’ worth of XRP by him during the same year.

As a researcher examining the ongoing legal battle between Ripple Labs and the Securities and Exchange Commission (SEC), I can share that there was a modest victory for Ripple Labs when Judge Phyllis Jamilton decided that four claims in the lawsuit would not advance to trial.

Garlinghouse criticized the portrayal of the ruling in cryptocurrency news outlets, identifying what he referred to as “misleading headlines” regarding the case.

“Without a doubt, this is an impressive outcome: every claim in the class action lawsuit has been dropped. It’s important to note that the court’s decision in no way alters or contradicts the fact that XRP, as a standalone entity, does not constitute a security.”
Brad Garlinghouse

In last year’s landmark decision, a New York court ruled that XRP, in its essence, does not equate to a security. Consequently, no violations of securities laws occurred during its sale on cryptocurrency trading platforms.

As a researcher studying the recent court ruling, I can share that the U.S. Securities and Exchange Commission (SEC) secured a partial win in their case against Ripple Labs. The judge involved determined that securities laws were indeed breached when XRP was offered directly to sophisticated investors. The SEC is now pursuing penalties totaling nearly $2 billion.

In this new case, the situation becomes complex regarding XRP. According to Judge Hamilton’s perspective, XRP could be considered a security when purchased by individual investors, not just institutions. This belief is rooted in the expectation of profits, which is a crucial element of the Howey test. She stated:

The court rules that it’s unlikely a prudent investor would have anticipated making a profit solely based on the overall trend of the cryptocurrency market, rather than Ripple’s specific initiatives to facilitate XRP transactions for cross-border payments and other projects.
Judge Hamilton

Garinghouse is now downplaying the significance of the “misleading statements” issue in the upcoming civil trial.

“The lone plaintiff didn’t purchase XRP directly from Ripple and isn’t sure if he was aware of the statement before trading, owning only a few hundred units. This case serves as an illustration of unsuccessful attempts by trolls to manipulate the US legal system for huge class action settlements by twisting statements.”
Brad Garlinghouse

I have maintained my stance on the points made during the CNBC interview, and I am looking forward to discussing these matters further in the upcoming court proceedings.

Stuart Alderoty, the legal head of Ripple, also concurred with this statement, expressing his anticipation for the ensuing interrogation.

Ripple slams the SEC

In relation to this legal matter, Garlinghouse and Alderoty, as well as Ripple Labs, have taken strong and definitive stances against the SEC.

Absolute nonsense coming from @GaryGensler today.

And this slander about “all crypto execs going to jail” from the man who completely missed FTX (and actually cozied up to SBF), and wasn’t even invited to the DOJ announcement about Binance.

If he was really “working for the…

— Brad Garlinghouse (@bgarlinghouse) June 25, 2024

Gensler’s statement about cryptocurrency industry pioneers from a few years ago being “either in jail, about to be arrested, or facing extradition” was labeled as “nonsense of the highest order” by Garlinghouse.

The entrepreneur asserted that these statements were defamatory – an ironic claim given his inability to prevent FTX’s collapse into bankruptcy prior to this incident.

Referencing the escalating frustration within the cryptocurrency sector toward the SEC and the White House, he issued a cautionary statement:

“Gensler will cause Biden to lose the election.”

Brad Garlinghouse

Currently, Alderoty has challenged Gensler’s assertion that the SEC alters its stance in response to unfavorable court rulings, as certain judges have expressed concern over regulatory overreach.

Note to @GaryGensler: The courts aren’t “adjusting”…they are finding that you are breaking the law by exceeding your statutory authority.

— Stuart Alderoty (@s_alderoty) June 26, 2024

Ripple Labs is determined not to back down; they’re gearing up to create quite a stir as the crucial election in November approaches.

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2024-06-29 12:28