Why is Ripple Labs being sued now?

Ripple Labs executives are now openly criticizing the SEC on Twitter, and claim that Gary Gensler will be the reason why Joe Biden loses the election.

The legal headaches at Ripple Labs just keep on coming.

A judge has now concluded that part of a civil securities lawsuit in California will go ahead, and it all centers on four words said by Brad Garlinghouse, the company’s CEO.

During a TV interview seven years ago, the entrepreneur had declared he was “very, very long XRP” — a seemingly innocuous and unsurprising statement.

But an aggrieved investor is arguing this was misleading, considering that Garlinghouse had sold XRP worth millions of dollars in that same year.

There was a little bit of good news for Ripple Labs though, as Judge Phyllis Jamilton ruled that four other claims in the lawsuit won’t proceed to trial.

Garlinghouse railed against how the ruling had been written about in crypto media — pointing to what he described as “misleading headlines” about the case. He went on to add:

“To be absolutely clear, this is a big win — all class action claims in the suit were DISMISSED, and absolutely nothing in the decision negates or changes the fact that XRP is, in and of itself, not a security.”

Brad Garlinghouse

Let’s zoom out a little bit here to get the context. In a significant judgment last year, a court in New York had concluded that XRP was “not in and of itself” a security, and no securities laws were broken when the altcoin was sold on crypto exchanges.

However, there was a slight victory for the U.S. Securities and Exchange Commission too, as the judge in that case had agreed that securities law was violated when XRP was sold directly to sophisticated investors. The SEC is now seeking close to $2 billion in penalties.

That’s where things get complicated in this latest case. Judge Hamilton believes that XRP has the potential to become a security even when sold to non-institutional investors because there would have been an expectation of profits, a key factor in the Howey test. She said:

“​​​​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.”

Judge Hamilton

Garlinghouse is now throwing cold water over the “misleading statements” part of the civil trial that will go ahead:

“The sole plaintiff didn’t buy XRP directly from Ripple and can’t say if he even heard the statement before he traded and only owned a couple hundred XRP. This was a clear example of the trolls that unsuccessfully tried to take advantage of the US legal system and distort statements to seek 100’s of millions in class action settlements.”

Brad Garlinghouse

He went on to argue that he stands by what he said in that CNBC interview, and is now eagerly awaiting the opportunity to talk about this in court.

Ripple’s chief legal officer Stuart Alderoty went on to echo these remarks, saying: “We look forward to that cross-examination.”

Ripple slams the SEC

Beyond this court case, both Garlinghouse and Alderoty have put themselves — not to mention Ripple Labs — firmly on the warpath with the SEC.

Garlinghouse accused SEC chair Gary Gensler of speaking “absolute nonsense” when he said that leading lights in the crypto sector from a couple of years ago “are either in jail, about to go to jail or awaiting extradition.”

The entrepreneur claimed this amounts to “slander” — and was a little rich coming from someone who had failed to clamp down on FTX before it spectacularly tipped into bankruptcy.

Pointing to the growing anger in the crypto industry that’s been directed at the SEC and the White House, he went on to warn:

“Gensler will cause Biden to lose the election.”

Brad Garlinghouse

Meanwhile, Alderoty has been questioning Gensler’s claims that the SEC adjusts whenever court decisions don’t go its way, with some judges claiming the regulator has overreached.