A federal judge has allowed a high-profile lawsuit accusing Ripple of selling unregistered securities to proceed. Plaintiff Bradley Sostack alleges the company illegally sold XRP as an unregistered security. Ripple maintains that XRP is not a security and says the claims lack merit.
Ripple moved to dismiss the case, arguing that even if XRP were a security, the claims would be time-barred. The company said any lawsuit should have been filed within three years of XRP’s initial offering in 2013.
Sostack’s legal team countered that the statute of limitations should be tolled because Ripple continued to sell the digital asset, extending the period. In a recent order, U.S. District Judge Phyllis J. Hamilton found that Ripple “did not make its first bona fide public offering of XRP before August 5, 2016 (three years prior to the filing of plaintiff’s federal securities claims in this action on August 5, 2019).”
The judge summarized the issue (paraphrased):
Although the defendants acknowledged various offers and sales dating to 2013 in their settlement with the USAO in May 2015, the sales activity identified in that settlement does not show that the defendants targeted the general public for the sale of XRP. Instead, the activity identified in that settlement either reflects that the defendants pursued or completed specific transactions with particular third parties or organizations, or it generally refers to the existence of the defendants’ sales activities without defining the market scope for such sales.
Ripple has argued the lawsuit could harm the XRP market. The company previously warned that labeling XRP as a security could upend the entire marketplace for the third-largest cryptocurrency.
In a motion to dismiss, Ripple’s legal team wrote (paraphrased):
Allowing [Sostack] to belatedly challenge the classification of XRP would not only undermine XRP’s usefulness as a currency, but would also disrupt the established XRP market—a market that over the past two years comprised more than $500 billion in trading activity—and would threaten to wipe out the value of allegedly thousands of individual XRP holders worldwide (many of whom likely do not agree with [Sostack]’s assertion that XRP is a security).
The judge also dismissed claims seeking personal liability against Ripple CEO Brad Garlinghouse and rejected the plaintiff’s false advertising claim against Ripple. A separate assertion that Ripple violated California state law was dismissed as well, although the plaintiff was given 28 days to refile that portion of the complaint in state court.