- Bitcoin Manipulation Abatement LLC has filed a class action lawsuit against Ripple for the unregistered sale of XRP as a security.
- Ripple is thus confronted with another lawsuit challenging the status of the cryptocurrency.
Ripple and its CEO Brad Garlinghouse are facing another class action lawsuit. The Bitcoin Manipulation Abatement LLC has filed a lawsuit against Ripple for the alleged violation of the US Securities Act. As in the class action, which is still pending and is represented by lead plaintiff Bradley Sostack, the new lawsuit states that XRP is a security that was marketed with false advertising promises.
The lawsuit was filed by attorney Pavel Pogodin through his company Consensus Law, based in Isla Verde, Puerto Rico. The plaintiff is Bitcoin Manipulation Abatement LLC, a company where Pogodin is also listed as an “agent”. The company already appeared in another class action last year when it sued the crypto derivatives exchange FTX. However, the lawsuit, which sought damages of USD 150 million, was dismissed within one month.
In the lawsuit against Ripple, Pogodin alleges that the founders created the token in order to make themselves rich and in return inevitably merged the company with XRP through various measures. In particular, Pogodin claims that Ripple advertised the XRP token as an investment with an “optimistic price prognosis”.
In order to drive the demand for XRP, and thereby increase the profits it can derive by selling XRP, Ripple has portrayed XRP as a good investment, relayed optimistic price predictions and conflated Ripple’s enterprise business with usage of XRP. Ripple is inextricably linked to the promotion of XRP. Ripple lines up crypto-exchanges to list XRP and pays substantial listing fees as part of those promotional efforts, and Ripple’s website links to trading markets for XR, to facilitate additional purchases by retail customers.
Pogodin further states that Ripple has a significant influence on the price of XRP. On the one hand, Pogodin refers to Ripple’s escrow account, which holds nearly 50% of the total XRP supply, and on the other hand, Ripple has developed “distribution strategies” to influence the price, according to Pogodin.
Ripple also placed a substantial percentage of XRP that it owned into escrow and developed a plan as to when XRP should be sold and in what quantities, all to limit selling pressure on the market in order to prop-up the price of XRP. For example, in 2014, publicly stated on its website that ‘we will engage in distribution strategies that we expect will result in a stable or strengthening XRP exchange rate against other currencies.
Stephen Palley, a partner at law firm Anderson Kill, commented on the recent lawsuit against Ripple with the following critical words:
In what is getting to be old hat, yet another lawsuit against Ripple and Mr. Garlinghouse saying that XRP is an unregistered security, created out of thin air, and serves no real purpose except to make a couple of people really rich. […] Now, all of that may well be true, but you do have to chuckle at the irony of a plaintiff that looks like it was created as a litigation vehicle making this charge.
Sostack v. Ripple class action lawsuit remains pending
As CNF reported in mid-January, the hearing of Ripple’s motion to dismiss Bradley Sostack’s class action lawsuit against Ripple Labs took place on January 15. The company had filed a motion to dismiss the class action suit because lead plaintiff, Bradley Sostack, had failed to file a suit within three years of the original purchase of XRP.
According to the document published in mid-January, the responsible judge has taken the case “under submission”, which means that she will issue a written decision at a later date. This may take months. However, observers of the case assume that the judge’s decision will not have a major impact on the decision whether XRP is a security. This decision will be made by the US Securities and Exchange Commission, the SEC.