Ripple has been in courts ever since Coffey filed a lawsuit claiming Ripple sold unregistered securities. That case was dropped but other cases emerged (Zakinov, Greenwald, Oconer) that were eventually consolidated into one.
The plaintiff’s claims
On August 5, 2019, the plaintiff filed the operative consolidated complaint against defendants. In it, the plaintiff alleges the following claims:
1. Violation of Section 12(a)(1) of the Securities Act (Title 15 U.S.C. § 77l(a)(1)) against defendants for the unregistered offer and sale of securities. Compl. 169-175;
2. Violation of Section 15 of the Securities Act (Title 15 U.S.C. § 77o) against defendant Ripple and defendant Garlinghouse for control person liability for the primary violation of Title 15 U.S.C. § 77l(a)(1). Id.176-183 (together with U.S.C. § 77l(a)(1), the “federal securities claims”);
3. Violation of California Corporations Code § 25503 against defendants for a primary violation of § 25110’s restriction on the offer or sale of unregistered securities. Id. 184-190.
4. Violation of California Corporations Code § 25504 against defendant Ripple and defendant Garlinghouse for control person liability in connection with defendants’ primary violation of § 25110. Id. 201-207;
5. Violation of California Corporations Code § 25501 against defendant Ripple and defendant XRP II, as well as a parallel material assistance claim under § 25504.1 against defendant Ripple and defendant Garlinghouse, for misleading statements in connection with the offer or sale of securities in violation of § 25401. Id. 191-200;
6. Violation of California Business & Professions Code § 17500 against defendants for misleading advertisements concerning XRP. Id. 208-212;
7. Violation of California Business & Professions Code § 17200 against Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 2 of 40 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 United States District Court Northern District of California defendants for their unregistered offer or sale of securities in violation of federal and state law, false advertising practices, misleading statements, and offense to established public policy. Id. 212-222.
Ripple filed a motion to dismiss the case in December and after a hearing on January 15th, the honorable judge Phyllis J Hamilton took the matter under submission, meaning that she would take her time to make a decision.
Judge grants and denies in part the motion to dismiss
Forty days later and the judge has reached a ruling: The court decided to Grant in part and Deny in part the defendants’ motion to dismiss the case.
– The motion to dismiss causes 1, 2, 3 and 5 is denied.
– The motion to dismiss cause 4 is granted with leave to amend.
– The motion to dismiss causes 6 and 7 is granted with prejudice
What does this mean?
The charges for misleading advertisements have been 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). Causes 1, 2, 3 and 5 that claim Ripple sold unregistered securities and that misleading statements were made stand.
The court will allow the plaintiff 28 days from the date of this order to file an amended consolidated complaint accounting for the deficiencies in the claims dismissed without prejudice (claim 4). In it, the plaintiff must specifically set forth any alleged misrepresentation used to support any amended claim. Failure to do so will result in the dismissal of such claim with prejudice. The plaintiff may not otherwise amend his complaint absent leave of court or consent of defendants. Upon the filing of any amended complaint, the plaintiff must also file a redline clearly demarcating its changes from the existing complaint.
We must not forget that the primary argument behind Ripple’s motion to dismiss the case was that the three-year statute of repose had expired. Ripple did not argue whether XRP was a security or not.
While Ripple and XRP investors would rather see this case dismissed, having removed 3 out of the 7 claims is a small victory for Ripple. But not the victory it hoped for. This case is yet to be decided.