The blockchain and crypto industry has been eagerly watching the lawsuits against Ripple, claiming the company and its executives sold unregistered securities (XRP) and committed fraud. In a recent development, Ripple and its executives have been cleared of any fraud allegations, excluding a statement made by Ripple’s CEO, Brad Garlinghouse, regarding his XRP holdings.
Zakinov v. Ripple Labs, Inc. (4:18-cv-06753) was filed in November 2018 in the District Court for the Northern District of California. Since then, it was related to various other cases (Oconer v. Ripple Labs, Greenwald v. Ripple Labs, Bitcoin Manipulation v. Ripple Labs, and Simmons v. Ripple Labs). Bradley Sostack was named as lead plaintiff in June 2019.
Ripple filed for dismissal and in February 2020, the honorable judge Phyllis J Hamilton granted and denied in part the motion to dismiss. Specifically, the charges for misleading advertisements were dismissed (causes 6 and 7) along with the charges against Ripple and Brad Garlinghouse for control person liability in connection with the defendants’ primary violation of § 25110 (cause 4).
The plaintiffs filed an amended complaint in March, consisting of seven claims for relief:
1. Unregistered Offer and Sale of Securities in Violation of Sections 5 and 12(a)(1) of the Securities Act (Against All Defendants)
2. Violation of Section 15 of the Securities Act (Against the Control Person Defendants)
3. Unregistered Offer and Sale of Securities in Violation of California Corporations Code Section 25110 and 25503 (Against All Defendants)
4. Violation of Section 25401 of the California Corporations Code (Against All Defendants)
5. Violation of Sections 25110 and 25504 of the California Corporations Code (Against the Control Person Defendants)
6. False Advertising in Violation of Business and Professions Code Section 17500, et seq (Against All Defendants)
7. Unfair Competition in Violation of Business and Professions Code Section 17200, et seq. (Against All Defendants)
Ripple once again argued for the fraud allegations (claims 4, 6, and 7) to be dismissed in June 2020 by claiming that the plaintiff failed to prove how and why those statements were false.
On October 2nd, the honorable judge Phyllis J. Hamilton reached a decision on Ripple’s motion to dismiss these fraud allegations.
Specifically, the court concluded that the plaintiffs failed to prove how the 17 alleged misstatements cited in their complaint were true. According to the judge: “The motion to dismiss the sixth and seventh causes of action for violations of California Business and Professions Code §17200 and §17500 is GRANTED with prejudice as to all defendants.”
However, the motion to dismiss the fourth cause of action for the predicate violation of California Corporations Code §25401 is DENIED. This means that the plaintiffs may proceed on that cause of action solely on the basis of Garlinghouse’s alleged misrepresentations concerning the scope and character of his XRP holdings. According to the complaint, “throughout 2017 Garlinghouse sold millions of XRP on various cryptocurrency exchanges” while making statements that he was long XRP.
Garlinghouse’s statements in a December 14, 2017 interview were the following:
“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.”
You can read the court’s ruling below, compliments of Mr. Hector Acosta Carrillo.order
This means that claims 6 and 7 claiming the defendants committed fraud have been dismissed. Claim 4 will proceed only in relation to Ripple’s CEO statements regarding his holdings. We expect that with the fraud allegations gone, both parties will focus on the security claims.