Ripple Faces New Collective Lawsuit

Ripple Labs Inc., its CEO Bradley Garlinghouse, and subsidiary XRP II, LLC, are facing a collective lawsuit filed in the Northern District of California. The fintech company from San Francisco is accused of breaching federal and state securities laws by offering and selling XRP without the necessary registration.

The plaintiffs allege that Ripple engaged in unauthorized sales of XRP, bypassing registration requirements outlined in both federal and state securities laws. The lawsuit aims to represent two separate groups: the Federal Securities Class and the California Securities Class. These groups consist of individuals and entities who acquired XRP between July 3, 2017, and June 30, 2023, either holding or selling the asset at a loss. Ripple and co-defendants have denied these allegations, stating that XRP is not a security and thus does not require registration.

The legal battle places Ripple in a challenging position as it navigates the complex regulatory environment of digital currencies. Ripple's primary defense asserts that XRP, a digital currency used for global transactions, should not be considered a security. The significance of this criterion is substantial, as classifying XRP as a security would entail numerous stringent regulatory requirements and thorough scrutiny. The outcome of this legal struggle could serve as a benchmark for handling digital assets in the US, impacting the regulation of other cryptocurrencies.

Investors and parties affected by the lawsuit face a critical decision regarding their legal rights and options. The deadline for participants in the class action who wish to exclude themselves from the lawsuit is April 5. Opting out enables these individuals and institutions to pursue individual litigation against Ripple independently for compensation, underscoring the broader implications of the lawsuit for Ripple beyond investors and the cryptocurrency market.

The collective lawsuit against Ripple unfolds amidst an ongoing legal battle with the US Securities and Exchange Commission (SEC). In the SEC's lawsuit against Ripple filed in December 2020, similar allegations were made regarding the company's unregistered offering of securities totaling $1.3 billion through XRP sales. Ripple's legal woes epitomize the regulatory uncertainty the entire cryptocurrency industry grapples with, highlighting the need for clear policies and frameworks governing digital assets.

Kraken's recent motion to dismiss the SEC lawsuit adds another layer to the narrative of digital asset regulation. Kraken, a leading cryptocurrency exchange, refers to Judge Torres's ruling regarding software sales, employing a sophisticated legal tactic used by cryptocurrency community members to combat regulatory oversight.

Attorney Bill Morgan believes that Kraken's actions may reduce the likelihood of the SEC settling its case against Ripple, increasing the possibility of an appeal from the SEC.