A class-action lawsuit has been filed against Ripple Labs Inc., Brad Garlinghouse and XRP II LLC. The lawsuit alleges that Ripple is a security under California law.
The lawsuit, filed by plaintiff Vladi Zakinov, states that the XRP token, despite being called a ‘token’ is actually a security as it indiscriminately offers XRP for sale to the public at large and that it uses the funds raised from the sale of XRP for funding.
This is the characteristics of a security, as per the complaint. The complaint goes on to say that the plaintiffs are effectively powerless to control the success of Ripple and XRP, with the investments being at substantial risk.
The plaintiff used Ethereum to purchase XRP tokens, buying 162 XRP at $14,337 and 57 XRP at $1365 in January 2018, when the price was at a high of $1 and above. Finally, the plaintiff purchased 299 XRP at $10923 on January 27th, continuing to hold it. The complaint states that the plaintiff invested in XRP with an expectation of the price to go up, with allegations that Ripple Labs have “promoted XRP and conflated the value of XRP with other software efforts”.
Moreover, the lawsuit alleges that Ripple uses XRP to fund its operations and promote the network. It said:
“This allows Ripple to have a spectacularly skilled team to develop and promote the Ripple protocol and network…On information and belief, the sale of XRP substantially dwarfs any other source of revenue for the company.”
This marks the second lawsuit against Ripple in a month’s time, as a plaintiff, Ryan Coffey filed a class action lawsuit against the same defendants over losing money after investing in XRP.
The lawsuit also alleges that the value of XRP is derived from the defendants’ efforts on behalf of the common enterprise. It says that Ripple Labs has “focused on how to create, maintain, and increase the value of XRP.” It also brought up the point that Ripple has 80 billion XRP and plans to sell it as “never-ending ICO”. It also claims that Ripple is not decentralized.
Allegations are made that Ripple Inc. control the value of XRP by “continuously touting it in the press and obscuring the role of the security.”, saying that they attempted to build demand through aggressive marketing. The aggressive marketing scheme mentioned in the lawsuit is the “How to buy XRP” section on Ripple’s website.
Other reasons quoted in the lawsuit include the statements of Brad Garlinghouse on various interviews talking about XRP and Ripple’s products utilizing the XRP Ledger, quoting these as “efforts to market and increase the value of XRP”.
Since the lawsuit is of a class-action type, the plaintiff represents all California citizens from January 1st, 2013. The lawsuit also states that the “members of the class are so numerous that the joinder of all members is impracticable.”
The lawsuit demands recompense for the plaintiff, awarding him for damages and reasonable costs and expenses. It also demands that XRP be subject to the California Corporations Code.
The lawsuit comes at a critical time when regulatory clarity is not reached in the United States as to the status of Ripple as a security. The pressure is building towards the declaration, as the SEC’s hand may be forced by continuing lawsuits.
User gdorsinville on Reddit said:
“You want to know why this happens, it’s because of the appearance of the intertwined relation between Ripple and XRP. Once XRP has it’s own image (logo), it would help in making a clearer distinction between itself and Ripple. Trust me, from some of the post that I read at times, the average Joe has a hard time making a clear understanding of that dynamic.”
Usseer Snookie1980 said:
“Just because a business (Ripple) was gifted/bought a shit ton of XRP does not mean it becomes a security. What if Microsoft’s CEO goes out a buys a shit ton of XBT, then would people claim it as a security if Bill Gates starts paying people with it or created another use for it? I would say no.”