California Judge Tosses Class Action Claims Against Ripple but Greenlights One Individual Case To Move To Trial

A California judge has dismissed a set of class-action claims against Ripple related to the sale of XRP, though she did send an individual case to trial.

Bradley Sostack, a former XRP investor, launched a class-action lawsuit back in 2018, claiming Ripple illegally sold XRP as an unregistered security and violated advertising laws in California.

District Judge Phyllis J. Hamilton dismissed both federal and state class-action claims that Ripple violated securities laws.

Sostack, however, also brought an individual case forward, claiming that Ripple CEO Brad Garlinghouse made a misleading statement “in connection with the offer or sale of securities under California state law,” according to a recent case document.

In a December 2017 interview on the Business News Network, Garlinghouse said he was “very, very long XRP” and was on “the HODL side” for the asset. Sostack alleges those statements were false, claiming the Ripple CEO sold millions of XRP on crypto exchanges that year.

Judge Hamilton said in her ruling that Sostack’s individual claim revolves around the Howey test, a legal criteria often cited to determine whether a transaction counts as an investment contract or not.

According to the Howey test, an investment contract is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

Explains Hamilton,

“Overall, given the relative novelty of cryptocurrency, and given the lack of any controlling law regarding the motivation of a reasonable cryptocurrency investor, 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.

Accordingly, the [court] cannot find as a matter of law that Ripple’s conduct would not have led a reasonable investor to have an expectation of profit due to the efforts of others. Because, as mentioned above, defendants made no other argument in favor of summary judgment on plaintiff’s fourth cause of action for misleading statements in connection with the offer or sale of a security, summary judgment on that cause of action is DENIED and the claim will proceed to trial.”

XRP’s classification became a notable matter of public debate when the U.S. Securities and…