XRP a security? Judge prepares decision in the class action

  • The class action suit against Ripple Labs for the unregistered sale of a security was heard orally yesterday.
  • The judge is preparing a decision on the motion to dismiss the class action. However, the decision is unlikely to provide much clarity.

Yesterday, Wednesday 15 January, the hearing of Ripple’s motion to dismiss the class action suit against Ripple Labs took place. The company behind the cryptocurrency XRP had most recently filed a motion to dismiss the class action suit because lead plaintiff Bradley Sostack failed to file a suit within three years of the original purchase of XRP. In doing so, Ripple is attempting to avoid the actual charge of an unregistered sale of securities to retail investors in the United States.

A number of Ripple (XRP) investors – three lawsuits (Zakinov, Oconer and Greenwald) have been combined – claim that due to a lack of information about the (illegal) sale of XRP, they made an investment in Ripple and lost money as a result. The plaintiffs are seeking to have XRP classified as a security under US law in order to be able to claim compensation for their losses.

Court decision likely to bring little clarity to Ripple

According to a published document of the competent court, the judge has taken the case “under submission”, which means that she will issue a written decision at a later date. This can take days, weeks or months. However, observers of the case assume that the judge’s decision will not have much influence on the decision whether XRP is a security. The decision will be made by the American exchange supervisory authority, the SEC.

Jake Chervinsky, a renowned lawyer in the crypto field, explained via Twitter:

Even if Ripple wins its motion to dismiss & has the whole class action thrown out, it won’t mean much for XRP.

The big & interesting question is if XRP was (or is) a security. Ripple’s motion didn’t ask that question, so dismissal won’t answer it — just defer it to another day.

Chervinsky and other crypto experts see Ripple Labs’ rejection motion based on formal reasons as a delaying strategy to further postpone a decision on the core question. A dismissal of the lawsuit would probably result in a new lawsuit. The delaying tactic could also favour Ripple Labs to the extent that time is on Ripple’s side.

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The longer the decision takes, the more likely it is that even if XRP was once a security, it will not be in the future. A similar decision was observed by the Commodity Futures Trading Commission (CFTC) with Ethereum. The CFTC decided, irrespective of the question whether Ether (ETH) was a security at the time of the Initial Coin Offering (ICO), that ETH is currently not a security because of the central development of the project.

The more external projects are developed on the XRP ledger, like Sologenic, and use the XRP token, the more likely it could be that XRP is not a security at a later point in time, as Chervinsky also noted.

Garlinghouse rejects claim as “outrageous”

A few days before the hearing, Ripple CEO Brad Garlinghouse stated that the lawsuit is ” outrageous”. In a CNBC interview, he said:

My view of this is it’s pretty outrageous. Here’s somebody who held XRP for, I think, two weeks’ time and is making some claims. Whether or not XRP is a security is not going to be dictated by one lawsuit.

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Obviously, the SEC of the United States is the governor of that, and I think it’s very clear that XRP is not a security. It exists independently of Ripple the company. If Ripple the company shut down tomorrow, the XRP ecosystem would continue to exist. […] And ultimately, XRP has a lot of utility, so to me it’s quite different than what a security looks like.

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About Author

Jake Simmons has been a crypto enthusiast since 2016, and since hearing about Bitcoin and blockchain technology, he's been involved with the subject every day. Beyond cryptocurrencies, Jake studied computer science and worked for 2 years for a startup in the blockchain sector. At CNF he is responsible for technical issues. His goal is to make the world aware of cryptocurrencies in a simple and understandable way.

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