Ripple, a California-based crypto startup focusing on the banking sector, stands firm in its claim that , the third largest digital token by market capitalization, is not a security and wants the federal court to dismiss a class action lawsuit according to which the company illegally sold unregistered securities, according to the official motion filed on September 19th.
Investors sued Ripple and its executives in 2018, saying that they were persuaded by Ripple to purchase their native token XRP, which led to them losing their money. The lawsuit claims that the company violated U.S. securities laws by selling XRP, and it asks for yet undetermined damages, but also – to declare XRP is a security.
In the motion to dismiss the lawsuit, Ripple’s attorneys deny that XRP is a security, but do not seem to focus on that issue. Instead, they focus on the claim that Bradley Sostack, the plaintiff, cannot file a complaint against the company, as the investors bought XRP as a part of the general public, as the motion says, from the secondary market – it was not a direct purchase – and that the complaint itself was filed too late. Ripple used a law by which the companies are protected from lawsuits concerning the sale of unregistered securities after three years from the initial sale, stating that it had their first XRP sale in 2013.
The question of XRP as a security, and hence the case itself, bears great importance, given that it may provide some answers on when a crypto should be classified as a security. Depending on that classifications, companies like Ripple could face a number of issues in the near future. But if Ripple succeeds in their claims, it may be that the judge will decide against commenting on the classification and the legal status of XRP.
The document states that Sostack “cannot plausibly allege that Ripple does not believe that XRP is not a security—particularly in light of the federal government’s May 2015 characterization of XRP as a currency.” It continues this by explaining that “XRP is not a “security” under Section 2(a)(1) of the Securities Act because it is not an “investment contract”.” Furthermore, it states that buying the native token is not an investment in the company, “there is no common enterprise between Ripple and XRP purchasers; there was no promise that Ripple would help generate profits for XRP holders; and the XRP LEDGER the XRP ledger is decentralized.”
The lawyers claim that, “because XRP is a currency, it cannot, as a matter of law, also be a security. […] because of the multiple, independent grounds for dismissing this action, the Court need not resolve whether XRP is a security or currency for purposes of this Motion, which assumes Plaintiff’s allegation that XRP is a security.”
At pixel time (08:31 UTC), XRP trades at c. USD 0.30 and is almost unchanged in the past 24 hours, is up by 17% in the past week and by 11% in the past month. It's still down by 9% in the past 12 months.
