A state-level judge has dismissed Ryan Coffey’s class action lawsuit against Ripple, possibly setting the case for a federal-level court case in which Ripple may have an edge.
Superior Court of California Dismisses Case Against Ripple
The Superior Court of California handed Ripple Labs a legal victory by dismissing a case brought by plaintiff Ryan Coffey against Ripple Labs subsidiary XRP II LLC and CEO Bradley Garlinghouse. The lawsuit included claims that Ripple Labs was overly focused on increasing the value of XRP and Ripple was not decentralized enough.
Ripple sought a dismissal of this lawsuit so that it can be moved to federal court using the Class Action Fairness Act of 2005, which was part of a push at tort reform. It permits federal judges to preside over cases in which interested parties can vary widely in citizenship or state of incorporation. Ripple’s attorneys believe that they may be able to gain an edge in federal court and lay some groundwork in law as it applies to businesses built around a proprietary cryptocurrency.
Grounds for a Lawsuit?
Would attempts to increase the price of XRP and lack of decentralization be grounds for a lawsuit, though? Despite claims by Ripple’s staff that it intends to meet the SEC’s standards for decentralization, backed up by the addition of third-party validators, many observers remain skeptical due to apparently canny statements by CEO Brad Garlinghouse. For instance, in October 2017, Garlinghouse had this to say about challenges to Ripple’s supposed decentralization efforts:
“Ripple is not centralized. To be clear, if Ripple disappeared today XRP would continue to function. To me that’s the most important measure of whether something is decentralized.”
Even if XRP never becomes decentralized enough to dodge the SEC’s definition of a security, it would not be unusual behavior for a company to make investments necessary to increase profits and incidentally keep the value of its stock up. Ripple, for instance, is currently discussing ramping up the use of its Ripplenet in Asia, India, Africa, and the Middle East. Events such as this are highly likely to impact XRP’s price.
On the flip side, Ryan Coffey’s original complaint with the Superior Court of California spoke of Ripple’s “never-ending ICO,” in which Ripple could essentially mint and sell unlimited amounts of XRP. The lawsuit also accused Ripple of paying high prices to top exchanges like Gemini for a listing in an environment where it’s pretty much an open secret that exchange listing fees can cost upwards of $2.5 million. The lawsuit filed on behalf of investors in XRP claimed that Ripple violated SEC regulations by selling unregistered securities. The plaintiff said of the case:
“Defendants themselves have recognized that XRP investors have a reasonable expectation of profit, and publicly touted XRP’s price performance on numerous occasions.”
Coffey reportedly bought 650 XRP tokens for $1,260 in January and sold them at a $551 loss a few weeks later. If he had held them, his holdings would be worth about $193.80 according to August 12 prices.
If he can convince a judge or jury that XRP is an unregulated security, he may have a chance at recouping at least some of his losses and the losses of other investors. However, Ripple is expected to have an edge now that the case will likely hit federal court.