Ripple seeks dismissal of fraud claims for XRP sale

  • Ripple has filed a motion to dismiss three of the seven claims in the class action lawsuit led by Bradley Sostack for the sale of XRP as an unregistered security.
  • The claims are those alleging Ripple committing fraud while selling XRP.

The class action lawsuit against Ripple Labs for issuing XRP as an unregistered security goes into the next round. The lawsuit, which has been pending since November 2018 and is led by Lead Plaintiff Bradley Sostack, is the oldest of all lawsuits against Ripple Labs. In the course of the trial, Ripple is facing a total of seven claims and charges.

In detail, Ripple Labs is accused of conducting an unregistered sale of securities in violation of the Securities Act and in violation of sections 25110 and 25503 of the California Corporations Code and of violating section 15 of the Securities Act as a controlling party. Furthermore, Ripple is accused of violating section 25401 and sections 25110 and 25504 of the California Corporations Code. Finally, Ripple is also accused of false advertising and unfair competition.

According to a new court document, published on June 8, Ripple Labs filed a motion to dismiss three of the seven charges alleging Ripple’s fraud. In the motion, the company’s attorneys state that lead plaintiff Bradley Sostack has failed to prove how Ripple employees and CEO Brad Garlinghouse made fraudulent statements.

In the United States, the term “fraud” is defined in such a way that the plaintiff has to prove two things. Firstly, the fraud has to have actually been committed and secondly, the defendant has to have been aware of the deception. According to Ripple, Sostack’s amended complaint (FAC), filed in March, does not meet the requirements:

The Plaintiff’s FAC identifies the allegations that purport to contain false statements,” reads the filing. But these “alleged misrepresentations” cannot be shown to be considered fraudulent and “Plaintiff does not (and cannot) explain how and why these statements are false.

In particular, Ripple’s attorneys also address the allegation in the amended complaint that Ripple and Garlinghouse were promoting XRP, while the XRP Ledger shows that Garlinghouse sold all XRP he received from Ripple within days of receiving it. Ripple denies, however, that this is a deception of investors. Just because Garlinghouse has sold his XRP doesn’t mean that he hasn’t still been optimistic about the token’s prospects, the motion says.

In general, the plaintiff has already failed twice to prove the allegations of fraud, and a third time shall not be admitted, which is why Ripple’s lawyers are demanding a dismissal of the claims:

The Plaintiff alleges only that “Defendants, separately or together, had knowledge of the falsity or misleading nature of a statement or omission made in connection with the offers or sales of XRP.” According to the defendants, that is improper and the plaintiff’s claims should be dismissed with prejudice as a result. […]

The defendants state that the “Plaintiff has twice failed to plead allegations sufficient to support the Fraud Claims. A third attempt should not be permitted and these claims should be dismissed with prejudice. That would forbid the plaintiff from re-accusing the company, or Garlinghouse, on similar allegations

Interestingly, Ripple has also submitted four documents in support of its case, one of which is the most recent letter from the US Bureau of Consumer Financial Protection (CFPB). As CNF reported, the US Bureau of Consumer Financial Protection has identified Ripple and XRP as potential game changers that can fundamentally transform the remittance market.


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