Ripple, a popular cryptocurrency company, is facing a legal battle in California after CEO Brad Garlinghouse’s past statements have caused a stir. The California District Judge Phyllis Hamilton has declared that XRP, the native token of Ripple, should be considered a security when offered to retail investors. This decision was based on the Howey Test, which determines if investments are securities by looking at whether they create an expectation of profits for investors.
Judge Hamilton emphasized that Ripple had created an expectation of profits for retail investors through its efforts to promote the use of XRP in cross-border payments. Despite Ripple winning a similar case against the SEC in 2023, the judge still believes that XRP functions as a security and has denied Ripple’s request to dismiss the case based on the previous ruling.
The legal troubles for Ripple began with statements made by CEO Brad Garlinghouse during a 2017 interview with BNN Bloomberg in Canada. In the interview, Garlinghouse expressed his confidence in XRP by saying, “I’m long [on] XRP. I’m very, very long [on] XRP as a percentage of my personal balance sheet.” The lawsuit alleges that this statement was misleading and intended to attract investors, especially since Garlinghouse sold millions of XRP tokens that same year.
The case is set to proceed in the Northern District of California, where a jury will determine whether Garlinghouse’s statements in the 2017 interview deceived investors. Judge Hamilton’s order, issued on 20 June, dismissed four charges against Ripple related to its failure to register XRP as a security, but one charge still remains unresolved.
Overall, Ripple’s legal battle in California highlights the complexities surrounding the classification of cryptocurrencies and the importance of transparency in the digital asset market. Investors and industry players will be closely watching the outcome of this case as it could have far-reaching implications for the future regulation of cryptocurrencies.