Ripple Labs has made a legal move which one lawyer has called “tactical brilliance” – it has consolidated its ongoing lawsuits into one manageable federal action.
Securities litigation attorney Jake Chervinsky of Kobre & Kim added that the move was “slick”.
The blockchain company wants the three cases to be heard at the US District Court, Northern District of California, arguing that they merit a single federal suit because there are more than 100 plaintiffs, at least one of whom resides in a different state to the defendant, and the money disputed exceeds $5 million.
The plaintiffs that filed the three suits are David Oconer, Vladi Zakinov and Avner Greenwald, who collectively want $167.7 million in damages on behalf of “thousands” of investors, who they claim were cheated. Being sued are Ripple Labs and a long list of members of its senior management.
A later court filing indicates that the plaintiffs intend to fight to have the cases heard at state level.
What are they suing about?
The lawsuits all revolved around the same thing – whether or not XRP counts as a security.
XRP is a utility token which powers Ripple’s money transfer service. Very basically, a sender in one country converts the money to XRP, which is transferred abroad, and then converted to the currency of the receiver. This has proved to be a quicker way of sending money than the existing system. On the other hand, the tokens are listed on exchanges and are on sale to the public, which is a characteristic of a share. In addition, a large proportion of existing tokens are held centrally by Ripple Labs.
Some have taken this argument to court.
One such lawsuit was filed in May by one Ryan Coffey, who appeared to have been motivated by losing $551 by buying and then selling 650 XRP in January. The suit of course did not refer to Coffey’s loss, but the status of XRP.
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His reasoning was that XRP tokens have been advertised as an investment by Ripple, that Ripple holds a large proportion of them, and that parties involved hope to profit from their rising value.
Thus, according to the suit, “Ripple Labs’ primary source of income is, and has been, the sale of XRP. Defendants earned over $342.8 million through XRP sales in the last year alone—XRP which costs Defendants nothing since they created it out of thin air.”
The lawsuit also accused Ripple of bribing exchanges to list the token. Coffey cancelled his case in August, but Ripple now wants it reinstated and added to the consolidated one.
In July, another investor claimed in court that XRP is part of a never-ending initial coin offering. That suit accused Ripple of failing to reveal the risks involved in investment and of manipulating the value of XRP tokens by withholding some from the market in order to generate profit for the owners.
All plaintiffs are demanding refunds and damages, which gives some insight into their motivation for suing.
Indeed, as the company’s lawyers argue in the recent filing: “Plaintiffs do not allege that they lacked information about the nature of these transactions. Nevertheless, Plaintiffs claim that they were somehow injured because the Defendants were allegedly required to register XRP as a ‘security’ with the Securities & Exchange Commission (‘SEC’) but failed to do so.”
Why move the case?
Attorney Stephen Palley of Anderson Kill told CoinDesk that “the conventional wisdom is that state court juries and judges tend to be more sympathetic to plaintiffs…Defendants, on the other hand, have a perception that they’ll get a more fair shake in federal court.”
I can’t speak to their odds of winning since the case is still so young & I don’t know all the facts, but it’s fair to say Ripple’s lawyers think they have better odds of winning in federal court than in state court (or else they wouldn’t be trying so hard to remove the case).
— Jake Chervinsky (@jchervinsky) November 9, 2018