The world of cryptocurrency is repeatedly put on fire by legal battles as regulators strive to keep up with the rapidly developing market. Among the most highlighted cases is the current lawsuit against Ripple Labs, the maker of the digital currency XRP. Recently, a huge decision was reached by the U.S. District Court for the Northern District of California, and I wanted to share my thoughts on such a decision. Essentially, it is a pretty complex decision, with some partial enrollment in favor of Ripple and some not. Summary judgment for Ripple was granted by Judge Phyllis J. Hamilton of the court; she dismissed some federal and state class claims. As a result, they were won by Ripple without having to go to trial.
She held that the federal claims were too old to be considered since filing had happened more than three years after XRP was sold for the first time. It's called being barred by the statute of repose. On the state claims, the judge held that Plaintiff could not establish a direct relationship, or "privity," between XRP purchasers and Ripple. Under California law, privity is required for such claims to succeed.
Not quite the case closed, however. The court denied summary judgment on one of the claims that plaintiff Bradley Sostack had brought. Sostack said Ripple's CEO, Brad Garlington, made certain misleading statements about his personal exposure to XRP. In a 2017 interview, Garlinghouse said he was long on his XRP, saying, "I'm very, very long on my XRP as a percentage of my balance sheet." Sostack asserts that statement to be false, the guy at the time was selling trolley loads of XRP. This part of the case will, therefore, proceed to trial because the court believes it is up to a jury to decide whether statements by Garlinghouse could have led investors to expect a profit.
The court's ruling more generally encapsulates the uncertainty and complexity of cryptocurrency regulation. If one considers digital currencies a relatively new creation, a clear and controlling law regarding their treatment under pre-existing securities laws has yet to be developed. It is this very lack of clarity that makes decisions by courts hard to reach and a challenging environment for companies like Ripple working in a blank legal space.
One of the most exciting aspects of this ruling is how it reveals the continually evolving nature of investor expectations in the cryptocurrency market. According to the court, a reasonable jury could find that XRP purchasers might have expected profits from Ripple's efforts to promote and use XRP rather than general market trends. Put another way, it gets at the heart of perhaps the most fundamental debate thus far around cryptocurrencies: Should they be considered a security, generally an investment made with the type of profit expectation that is derived from the efforts of others?
This ruling reminds me again of the need to keep investors and companies alike abreast of the fluid state of the legal landscape. As cryptocurrencies grow in popularity, value, and maturity, the rules guiding them will become more lucid and established. Until that time, the crypto market involves risks that everybody needs to be aware of, all the while being ready for entanglements.
Posted Using InLeo Alpha
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