Ripple Labs Crypto Investors Get Class Status in Securities Suit

A Ripple Labs Inc. investor class was granted certification in a cryptocurrency securities lawsuit against the company over virtual token losses.

The company, CEO Bradley Garlinghouse, and its subsidiary XRP II challenged the certification. But the class met the four requirements for certification, Judge Phyllis J. Hamilton of the US District Court for the Northern District of California said June 30.

The action alleges a “scheme by defendants to raise hundred of millions of dollars through sales of XRP—an unregistered security—to retail investors in violation of the registration provisions of federal and state securities laws,” court records show.

The plaintiffs established that common class issues will predominate over individual ones, the judge said.

Ripple argued that the plaintiffs failed to demonstrate they’d adequately protect the interests of the class, because many proposed members didn’t agree on the premise of the lawsuit and one named plaintiff, Bradley Sostack, made secondary market purchases, rendering his claims subject to unique defenses.

But, the merits issue of whether XRP is a security will be the same for all class members and “any disagreements by potential class members over the premise of the lawsuit can be remedied by the standard opt-out procedure,” Hamilton said.

Ripple also failed to present any reason why Sostack’s indirect purchases made his claim any weaker than those of other class members, the court said.

Hamilton also said she didn’t find merit in Ripple’s argument that Sostack’s status as a day trader made him lack credibility and in turn made his claims atypical of the class’s.

Ripple also argued that individualized issues of standing predominate over common questions, and that the class didn’t put forward a common methodology for proving damages.

No specific bilateral transactions raising individualized issues were identified, nor were any transactions on decentralized exchanges, the court said.

To the extent “defendants identify entities that acquired XRP in exchange for goods or services, such as Tapjets, Time Magazine, and Crypto.com Pay,” Hamilton said, Ripple provides “no indication of how common or uncommon such transactions were, compared to the rest of the transactions within the scope of the class.”

The court certified two classes, for federal and California state securities claims, with the limitation that both only include members who purchased XRP within the US during the relevant class period from July 3, 2017 to June 30, 2023.

Taylor-Copeland Law and Susman Godfrey LLP represented the plaintiffs. King & Spalding LLP; Debevoise & Plimpton LLP; and Kellogg, Hansen, Todd, Figel & Frederick PLLC represented the defendants.

The case is Zakinov v. Ripple Labs Inc., N.D. Cal., No. 18-cv-06753, 6/30/23.