Ripple moves to dismiss Fraud Allegations, files CFPB rule

by | Jun 9, 2020

Ripple has been facing a series of lawsuits ever since Ryan Coffey filed the first lawsuit against Ripple, claiming XRP was an unregistered security. After getting two of the lawsuits related and consolidated into one, Ripple now faces two lawsuits. The oldest one of the two is Zakinov v. Ripple Labs, with Bradley Sostack as the lead plaintiff.

Seven claims against the defendants

The lawsuit contains seven claims against the defendants, Ripple Labs Inc., XRP II LLC, and Bradley Garlinghouse:

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 files motion to dismiss fraud claims

On June 8th, Ripple filed a motion to dismiss three of the seven claims. Specifically, Ripple moved to dismiss claims four, six, and seven, in connection to the fraud allegations


Ripple’s lawyers argue that the plaintiff’s amended complaint, filed in March, did not fulfill the first pre-requisite:

The Plaintiff’s FAC [first amended complaint] identifies the allegations that purport to contain false statements,” reads the filing. But these “alleged misrepresentations” cannot be shown to be considered fraudulent and “Plaintiff does not (and cannot) explain how and why these statements are false.”

According to the motion, the plaintiff has failed “to identify the respective involvement of each defendant in the alleged fraud” and “differentiate which allegations of fraud apply to which defendants,” which the Court previously held was an independent basis for dismissing the Fraud

The Plaintiff alleges only that “Defendants, separately or together, had knowledge of the falsity or misleading nature of a statement or omission made in connection with the offers or sales of XRP.” According to the defendants, that is improper and the plaintiff’s claims should be dismissed with prejudice as a result. Leave to amend these claims should be denied because any amendment would be futile, as evidenced by the failure of the amendments that led to the motion at hand. The defendants state that the Plaintiff has twice failed to plead allegations sufficient to support the Fraud Claims. A third attempt should not be permitted and these claims should be dismissed with prejudice. That would forbid the plaintiff from re-accusing the company, or Garlinghouse, on similar allegations

The fraud allegations were based on several statements made by Ripple and Garlinghouse promoting the company’s products and XRP.

Four documents to back it up

Along with the motion to dismiss the three claims, the defendants also filed four documents to be taken into account.


The first document is the Bureau of Consumer Financial Protection’s Notice of Final Rule on Remittance Transfers under the Electronic Fund Transfer Act, 12 C.F.R. pt. 1005.
The second document is Ripple’s Submission to the Conference of State Bank Supervisors, dated February 14, 2015. Plaintiff cites, quotes, and references the Submission in support of his claims against the Defendants. As a result, the Submission should be incorporated by reference into the FAC. A true and correct copy of the Submission to the Conference of State Bank Supervisors is attached as Exhibit B to the Pritt Declaration.
The third document is a CNBC article titled “Ripple is sitting on close to $80 billion and could cash out hundreds of millions per month—but it isn’t.” A true and correct copy of this article is attached as Exhibit C to the Pritt Declaration. Defendants previously requested the Court take judicial notice or incorporate by reference this article as part of its motion to dismiss Plaintiff’s original Consolidated Complaint, Dkt. 70-1, 70-6, but the Court found it did not need to consider the request to resolve Defendants’ motion, Dkt. 85 at 4. Defendants renew their request as it pertains to their new Motion to Dismiss.
The fourth document is a press release, which Ripple posted and linked to via a tweet relied on by Plaintiff. FAC ¶ 66 & n.45. A true and correct copy of the tweet and the press release it links to are attached as Exhibit D to the Pritt Declaration.

XRP and The Bureau of Consumer Financial Protection (CFPB)

Interestingly enough, the first document Ripple filed for judicial notice was the recent rule by the Bureau of Consumer Financial Protection (CFPB). According to the rule:

The Bureau has continued to monitor the remittance transfer market since the publication of the Assessment Report and observes that most of these developments continue to progress. Examples include: (1) The continued growth and expanding functionality of the Society for Worldwide Interbank Financial Telecommunication (SWIFT)’s ‘‘global payment innovation’’ (gpi) tracking product, which can increase the amount of up-front information available to sending institutions, and the expansion of the major payment card networks’ capacity to support cross-border payments; (2) the continued growth of ‘‘fintech’’ nonbank remittance transfer providers and their further expansion into partnerships and other relationships with banks and credit unions, which allow such entities to tap into the closed network payment systems that nonbank remittance transfer providers have developed; and (3) the continued growth and expanding partnerships of virtual currency companies, such as Ripple, which offer both a payments messaging platform to support cross-border money transfers as well as a virtual currency, XRP, which can be used to effect settlement of those transfers.

Special thanks to Hector for sharing the documents with us.