Ripple Faces Lawsuit from Investors Claiming XRP Is an Unregistered Security
It seems that the trouble for Ripple to back its XRP tokens is neverending. In a recently amended complaint filed against the company, a group of XRP investors argues that the XRP tokens act as unregistered securities.
The latest argument stems from the guidance provided by the Securities and Exchange Commission (SEC). The investors cite SEC’s newly released “Framework for ‘Investment Contract’ Analysis of Digital Assets” and say that under this framework, XRP proves to be unlawful securities.
According to CoinDesk, the latest complaint filed by the investors was on August 5, last week. Ripple has been facing similar lawsuits over the last year. However, it has managed to consolidate complaints of a similar nature and move them to a federal court. But unlike the previous complaints, this time, Ripple has to answer by next month, September 19.
Ripple Violating California Laws
The filing by the investors also notes that Ripple has been violating California’s laws for false advertising and unfair competition. It states that Ripple has been allegedly “blurring differences between Ripple’s enterprise solutions and XRP to further drive demand,” and “paying exchanges to list XRP, limiting the supply of XRP to drive demand” among other things.”
It is clear that the plaintiff wants to tie the XRP Ledger to its parent company, despite the claims by the company that both are different. Jake Chervinsky, general counsel at crypto lending startup Compound Finance, told CoinDesk that this could be a strong case against Ripple. He added:
“The Complaint reads like a love letter to the SEC. Although the SEC’s Framework is technically only non-binding guidance, the Court will likely give it significant weight in deciding how to apply the Howey test to the facts of this case.”
“This is important because California uses the ‘risk capital test’ in addition to the [federal] Howey test to determine whether a transaction qualifies as a security. The risk capital test is broader than the Howey test, meaning the plaintiffs could lose their federal securities claims and still win their state securities claims,” noted Chervinsky, speaking specifically about California’s laws.
“This is the first time we have seen the SEC’s Framework applied in a case in federal court. Although the framework on its own doesn’t have precedential value – meaning the court is not required to follow it – it will be very interesting to see how the court handles the utility of the framework in moving forward in determining whether XRP is a security,” said Rebecca Rettig, who is a partner at the law firm of Fisher Broyles.
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