Ripple Files Motion for Court to Toss XRP Securities Lawsuit

Ripple, the cryptocurrency firm behind the XRP token, has requested a federal court dismissal of a class-action lawsuit; all while ignoring one major issue, XRP's security status.

The original lawsuit was first launched back in early 2018, by a handful of disgruntled XRP investors. The plaintiffs claimed that Ripple violated securities laws during the initial offering of the token; stating that XRP was intrinsic to Ripple's operational integrity.

The relationship between XRP and Ripple has been a mostly grey area. This association has been put to the test in federal court for most of 2018, and now, well into 2019.

Too Little Too Late

Today, Ripple filed the motion to dismiss, with the firm basing the dissolution of the lawsuit on the basis that the plaintiff, Bradley Sostack, delayed in filing the suit. The company states that Sostack should have voiced his concerns back in 2013 after the cryptocurrency's initial coin offering (ICO); rather than 2018, when the lawsuit claims were brought forward. Ripple's lawyers cite a three-year statute of repose, which under the securities act, limits liability claims to a three year period within which to file. This statute is highlighted within Ripple's motion to dismiss :

"Under Plaintiff’s own allegations, Defendants offered XRP to the public throughout 2013 through 2015. Accordingly, the three-year statute of repose expired as of 2016 (three years after the sales cited in the May 2015 settlement) and in no case later than May 2018 (three years after the May 2015 settlement agreement in which ‘Defendants acknowledged that they had sold XRP to the general public,’ Complaint ¶ 25). The Securities Act claims in the Complaint, filed August 5, 2019, are therefore untimely and barred by the statute of repose.”

The proposal also indicates Sostack's jurisdiction in filing the claim, noting that it was listed under Califonia state law, not federal securities law, and therefore should be disregarded.

Is XRP a Security?

Interestingly, despite citing securities law, Ripple has been keen to evade a crucial question of XRP's security status. This is has been a significant point of contention both within the lawsuit itself, and the wider cryptocurrency community. As per the motion, the approach of Ripple's lawyers on the issue was that it didn't require addressing...

“Because of the multiple, independent grounds for dismissing this action, the Court need not resolve whether XRP is a security or currency for purposes of this Motion, which assumes Plaintiff’s allegation that XRP is a security.”

This was of particular note to many today, as the question of XRP's classification was once again raised. Crypto Twitter's resident lawyer Jake Chervinsky was one of the first to highlight this point, stating:

Ripple has finally filed their motion to dismiss in the pending securities class action regarding XRP. They make twelve separate arguments for dismissal of the plaintiff's claims. Not a single one squarely addresses whether XRP is an unregistered security.

Ripple's Regulation Woes

The argument over XRP's status has been drawn-out and lengthy. The SEC uses the Howey test to decide whether or not a digital asset should be classified as a security.

The Howey test, formulated in 1946 by the US Supreme Court, strives to determine asset classification. Per the test, a security is defined as an investment of money in a common enterprise, with an expectation of profits from said investment, from profits originating via the efforts of a third party promoter.

Ripple CEO Brad Galringhouse has long stood by his estimation that XRP doesn't fit the criteria stated within the Howey test. Garlinghouse spoke on the lawsuit back in 2018, noting that XRP exists independently of Ripple, and therefore doesn't classify as a security.

Will Thor's Hammer Strike?

Last month Sostack reignited his original claims, by including SEC guidance which alluded to XRP's security status. The filing read:

“As explained in more detail below, applying the analysis in the SEC Framework and applicable precedent, the XRP tokens offered and sold by Defendants have all the traditional hallmarks of a security."

Bitcoin bull and XRP detractor, Tone Vays jumped into the fray. Citing Sostack's amended complaint, suggesting that the SEC would bring down "Thor's Hammer" on Ripple.

XRP's classification is of fair importance to the cryptocurrency space, as it would stand as a precedent to other altcoins; therefore, the decision of the court as to throw the case may have wide-spanning ramifications.

September 20, 2019 10:58 AM