Investors filed new lawsuit against cryptocurrency startup Ripple, which cites excerpts from the latest US Securities and Exchange Commission (SEC) guidance for industry representatives.
An updated version of the lawsuit in the case, which has been ongoing for more than a year, was filed on August 5 and contains several new arguments designed to confirm that Ripple violated the provisions of securities laws in the process of selling XRP cryptocurrency. This is the first lawsuit in which Ripple has to respond directly to the allegations. The company has until September 19 to prepare a response. Four previous California lawsuits were successfully consolidated by Ripple into one and brought to federal court.
According to attorney Jake Chervinsky, the latest suit is “compelling” and is backed by Susman Godfrey, “one of the best prosecuting law firms in the United States.” He also noted that the document explains why XRP should be considered a security at the federal level and in the state of California: “This is important because California uses a capital risk test in addition to the federal Howie test to determine if a transaction qualifies as valuable. paper. The capital risk test is broader than the Howie test, meaning that plaintiffs can lose at the federal level but win at the state level. “.
Plaintiffs try to prove the link between XRP Ledger – the distributed network underlying XRP – and Ripple.
Probably one of the most important differences between the new lawsuit and the previous ones is the reference to the regulatory guidance provided by the SEC to determine whether a particular digital asset is a security..
“Although the SEC document is technically non-binding, the court is likely to pay considerable attention to it when interpreting the Howie test in relation to the facts indicated in the lawsuit,” Chervinsky explained..
Rebecca Rettig, a partner at Fisher Broyles, a law firm not involved in the proceedings, said this is the first time that SEC guidance is being applied to a federal lawsuit..
“While the guidance has no precedent, meaning the court is not obligated to follow its provisions, it will be interesting to see how the court uses it in determining XRP status,” she said..
“The XRP acquisition constitutes an investment of money in a common enterprise,” write the plaintiffs in the words of the SEC. – XRP investors had reasonable expectations of earning income. XRP’s success depends on the actions of Ripple and others. The main plaintiff and class members invested in fiat currencies and other digital currencies such as Bitcoin and Ethereum in order to acquire XRP. As the SEC explains in its guidance, investments in fiat and digital currencies meet the first aspect of the Howie test. “.
Rettig noted that “all factors in the SEC’s leadership are based on established federal practice, so the plaintiffs are likely to refer to the relevant precedents and not just the SEC document.”.
The plaintiffs also mention statements by Ripple CEO Brad Garlinghouse and CTO David Schwartz, which may support their position. So, in 2017, in a conversation with CNBC, Garlinghouse said: “People see that Ripple is successful as a company, and I think that this increases the value of XRP.”.
“The lawsuit underscores Ripple’s own statements to prove that XRP investors had a valid expectation of earning income from Ripple’s management activities,” Chervinsky added. “Similarly, the SEC filed its own lawsuit against Kik.” The SEC previously sued startup Kik, claiming it violated securities laws when it launched its $ 100 million ICO in 2017.
Tweets as proof
In addition, the document contains about 40 tweets, including messages from Ripple, executives and other employees of the company, discussing listings on exchanges, Ripple reserves in XRP and other measures to promote the cryptocurrency..
“I’ve never seen so many Twitter quotes in one lawsuit before,” Chervinsky said..
The plaintiffs did not stop there and stated that Ripple misled the general public regarding the use of various products..
“On April 26, 2017, Ripple posted a tweet linking to an article on its own website, stating,“ #Ripple welcomes 10 additional customers to our #payment # blockchain network. ”Neither in the tweet nor in the article, the readers were not informed that the payment blockchain network is not the XRP Ledger registry, but the corporate solution xCurrent from Ripple, the document says. – A few days later, on May 3, 2017, amid continued XRP growth, Ripple posted the following tweet: “Adoption of #Ripple is fueling interest in XRP,” which has experienced an outstanding rally over the past two months, “according to @Nasdaq. “.
Not only about securities
Also, for the first time, the new lawsuit included some arguments not related to securities laws..
“For the first time, plaintiffs claim that Ripple violated California laws on unfair advertising and unfair competition by spreading false information about the origin, turnover and adoption of XRP,” Chervinsky said..
The plaintiffs are demanding compensation for the losses they suffered on their XRP investments. The main plaintiff lost $ 118,100. The losses of the rest of the participants in the proceedings have not yet been calculated.
More importantly, the plaintiffs want the court to recognize XRP as a security. This decision could directly affect Ripple’s ability to sell XRP, as well as limit the ability of investors to acquire cryptocurrency..
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