In re Ripple Labs Inc. Litigation

Background

Bradley Sostack asserted securities claims against Ripple Labs, XRP II, and Bradley Garlinghouse. The remaining claims included:

The federal and state registration claims had been certified as class actions for qualifying purchasers of XRP within the United States. Sostack’s misleading-statements claim was brought only in his individual capacity and concerned Garlinghouse’s December 14, 2017 statement that he was “very, very long XRP.”

Federal class claims

Defendants argued that the federal registration claims were barred by the Securities Act’s three-year statute of repose, which bars claims brought more than three years after a security was bona fide offered to the public. The court applied the “first-offered” rule, under which the period begins with the first bona fide public offer. It used July 3, 2015 as the relevant earlier date because federal claims had been asserted in an earlier round of the case that was later consolidated into this action; the court said the result would be the same using the later date proposed by defendants.

The evidence showed that XRP was listed on several digital-asset exchanges in 2013 and 2014, and that substantial XRP trading occurred before July 3, 2015. The court rejected Sostack’s arguments that those early offers were not bona fide or that later marketing efforts created separate offerings. It found no meaningful differences between the alleged offerings and held that the federal class claims were barred by the statute of repose. The court therefore granted defendants summary judgment on those claims.

California class claims

The court had previously ruled that a California claim for failure to register under § 25503 required privity, meaning a qualifying direct legal relationship between the purchaser and the defendant or the defendant’s agent. On summary judgment, defendants argued that Sostack could not prove that relationship. They presented evidence that only two of Sostack’s more than 40 XRP transactions, involving approximately 117 of his 129,000 purchased XRP units, were from a market-maker known as GSR. Defendants also presented evidence that GSR represented multiple sellers and that there was no evidence tying those specific sales to Ripple.

Sostack’s opposition did not address the privity argument or defendants’ evidence. The court therefore found that he had waived the argument. It also ruled that, even considering evidence previously submitted during class certification, Sostack had not raised a genuine dispute about whether class members were in privity with Ripple or its agents. The court granted summary judgment on the California class claims.

Individual misleading-statements claim

Defendants argued that the individual claim failed because XRP was not a security under the test from SEC v. Howey. That test asks whether there was an investment of money in a common enterprise with an expectation of profits from the efforts of others.

The court rejected defendants’ arguments concerning the first two parts of the test. It could not conclude as a matter of law that secondary-market purchasers did not invest money or participate in a common enterprise merely because their purchases were made through exchanges rather than directly from Ripple.

As to the third part, the court considered evidence that Ripple publicly promoted its efforts to develop uses for XRP and to support cross-border payments. It also considered statements by Garlinghouse and Ripple representatives linking Ripple’s efforts, XRP’s use, and XRP’s potential value. Because of the novelty of cryptocurrency and the lack of controlling law about what a reasonable cryptocurrency investor would understand, the court declined to rule as a matter of law that purchasers could not have expected profits from Ripple’s efforts.

Because defendants offered no other basis for summary judgment on the individual misleading-statements claim, the court denied summary judgment on that claim. The claim will proceed to trial.

Expert-evidence motions

The court denied as moot two motions to exclude expert testimony concerning classwide damages because the class claims were no longer in the case. Those were defendants’ motion concerning Steven P. Feinstein and Sostack’s motion concerning S.P. Kothari and M. Laurentius.

The court deferred ruling on four remaining motions to exclude expert testimony. It gave the parties 28 days to notify the court whether they still sought to exclude the testimony of the remaining experts, including Alan Schwartz, Saifedean Ammous, and Joel Seligman.

Sealing request and disposition

The court granted the parties’ request to extend by three weeks the deadline for filing a narrowed motion to seal certain exhibits. The new deadline was July 8, 2024, and the court said it would address that motion separately.

The court granted defendants’ motion for summary judgment in part and denied it in part. It granted summary judgment on the federal and state class claims and denied summary judgment on Sostack’s individual California misleading-statements claim. It also denied the two specified expert-evidence motions as moot and deferred the remaining expert-evidence motions.