Ripple Labs chief executive Brad Garlinghouse is set to face a legal battle in California with plaintiffs alleging he issued misleading statements. 

The plaintiffs have issues with Garlinghouse for making a long statement on XRP. The suit alleges that the Ripple chief disposed of millions of XRP in 2017. 

A judge in California has approved the plaintiffs’ case, putting Ripple Labs on the defensive over misleading statements by Garlinghouse. This blockchain company is scrutinized for selling XRP tokens after a 2017 statement deceived the plaintiffs, leading them to invest heavily.

Ripple Labs’ chief mislead investors

The plaintiffs submitted that Garlinghouse misled them during a 2017 interview with BNN Bloomberg, during which he held a long position on XRP. The lawsuit, which now proceeds to the trial phase, is set for a hearing before a jury. 

The plaintiffs submitted that Garlinghouse was misleading, citing that he sold millions of XRP tokens later that year. 

Judge Phyllis Hamilton gave a partial green light on Thursday, June 21, dismissing four charges against Ripple Labs. These charges concerned failing to register a token as a security. However, she partly denied these claims, alleging that Garlinghouse misled investors.

This lawsuit stands separate from the ongoing case by the SEC, led by Gary Gensler, which claims XRP is an unregistered security.

In July last year, Ripple Labs received partial relief when Judge Analisa Torres in New York ruled that XRP’s retail sales largely complied with US securities laws. Yet, she affirmed that sales to institutions breached these laws.

Misleading statements’ case proceeds to trial 

Ripple Labs’ lawyers submitted in the California case motion to dismiss the alleged misleading statements claim. The defense lawyers submitted that XRP fails the Howey test and is thus not a security. They cited the New York court’s ruling to bolster their submissions.

Judge Hamilton observed that one could consider XRP security when offered to non-institutional investors, and one expects profits from Ripple Labs’ efforts and not others. 

The court declined the argument that a reasonable investor would derive an expectation of profit from crypto market trends. Such an expectation is realizable due to Ripple’s efforts and involvement in facilitating XRP usage to execute cross-border payments. 

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