Ripple Files Motion Seeking Dismissal of Class-Action Lawsuit

Ripple, whose cryptocurrency XRP was the subject of a class-action lawsuit last month, has filed a motion seeking its dismissal. The class-action lawsuit was filed in Oakland, Calif., last month by Bradley Sostack from Florida. It charged Ripple with conducting an “unregistered sale of securities” and violating California’s advertising laws.

Critics say XRP is an unregistered security whose price has been artificially inflated by Ripple to raise funding for its projects. Unlike Bitcoin and Ethereum’s Ether, which are continuously mined and released to the markets, the entire quantity for XRP was pre-mined in 2013. Approximately sixty percent of the total XRP is kept in escrow by Ripple, the company. This gives it an additional incentive to inflate the coin’s price and cash out during peak periods.   

A Ripple Response

In its response to the lawsuit, Ripple’s team stated that the U.S. Department of Justice and Treasury had recognized XRP as a “convertible virtual currency” in 2015. “It is correctly characterized as a currency under applicable law and, as such, need not be registered as a security under federal and state securities regulations,” the Ripple team stated in its filing.

It also invoked a three-year statute of repose from the Securities Act as defense. According to the statute, the time period for filing complaints against unregistered securities is limited to three years. The defense team cited numerous instances from Sostack’s filing that testify to the expiration of this statute. For example, the lawsuit states that Ripple’s XRP was created in 2013 and Sostack bought his first XRP in 2018 from secondary markets. (The initial XRP sale to the public occurred before May 2015).

Finally, the Ripple team invoked the Bowen doctrine, which states that false advertising claims and unfair competition laws do not apply to advertising for securities, as defense against the charges of violating California’s False Advertising Law (FAL) and Unfair Competition Law (UCL).