Ripple CEO Garlinghouse Under Scrutiny for Allegedly Misleading Investors on XRP Security Status

A recent ruling by Judge Phillis Hamilton of the United States Federal Court has given the green light to a civil securities lawsuit against Ripple Labs and its CEO, Brad Garlinghouse. The lawsuit alleges that Garlinghouse violated California Security Laws by making deceptive statements during a 2017 interview. Ripple Labs is facing four allegations related to its failure to register XRP as a security.

During the interview with Canada’s BNN Bloomberg, Garlinghouse claimed to be “very very long” on XRP. However, the lawsuit argues that this statement was misleading because Garlinghouse sold millions of XRP tokens that same year.

Ripple had argued that the “misleading statement” claim should be dismissed, as XRP is not considered a security under the Howey Test, citing a landmark ruling by Judge Analisa Torres in the SEC and Ripple lawsuit in July 2023. However, Judge Hamilton disagreed with this argument and found that XRP could be considered a security when sold to non-institutional investors.

In her ruling, Judge Hamilton stated, “The court declines to find as a matter of law that a reasonable investor would have derived any expectation of profit from general cryptocurrency market trends, as opposed to Ripple’s efforts to facilitate XRP’s use in cross-border payments, among other things.”

The 2023 Torres ruling was highly regarded in the cryptocurrency industry for its potential implications, although its full impact is still uncertain.

The legal battle between Ripple and the SEC is ongoing, particularly regarding the proposed civil penalties. Initially, the SEC sought $1.95 billion in penalties from Ripple. In response, Ripple suggested a much lower penalty of $10 million, citing a recent settlement involving Terraform Labs. However, the SEC rejected this proposal, arguing that such a minimal penalty would not serve the intended purposes of civil penalty statutes.

The dispute between Ripple and the SEC shows no signs of ending anytime soon.

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