A class action lawsuit against Ripple over whether XRP is a security has been moved to federal court. Specifically, the lawsuit has been removed from the San Mateo Superior Court and transferred to the US District Court for the Northern District of California. Ripple’s lawyers motioned for this move, since in the federal courts Ripple might stand a better chance at winning the case.
Government securities litigation attorney Jake Chervinsky Tweeted on what he says is a brilliant tactical move by Ripple.
Ripple's legal team showing some tactical brilliance here.
It's hard to explain the procedural maneuver in one tweet & I'm not going to thread this, but suffice to say it's a *seriously* crafty attempt to go federal. Might not work, but slick regardless.https://t.co/DuR5kWNJwy
— Jake Chervinsky (@jchervinsky) November 9, 2018
The plaintiffs in the case allege Ripple did not register XRP as a security with the Securities and Exchange Commission (SEC), which resulted in losses for XRP holders. Specifically, Ripple’s lawyers say, “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.”
The case was moved because there are more than 100 people on the case suing Ripple, the damages are in excess of USD 5 million, and at least one of the plaintiffs is in another state. In total, the plaintiffs are asking Ripple to pay USD 167.7 million in damages.
It appears the main strategy that Ripple will use to defeat this case is to prove XRP is not a security, and it has hired a former SEC Chairman and a former SEC Director of Enforcement onto its legal team to help bring about that ruling. This might be a tough case regardless, since the SEC has clearly stated that any cryptocurrency which is issued by a company that receives profits from selling the cryptocurrency is a security. Considering that Ripple holds most of the XRP in existence and regularly sells it, it is possible the courts could consider XRP a security.
There are other benefits to moving the case to federal court according to Chervinsky, including plaintiffs may be entitled to less discovery, favorable class action procedures, federal judges are more favorable towards corporate defendants, and lawyers in federal court may have more experience. Additionally, if Ripple succeeds in getting the federal court to declare that XRP is not a security, it will mean much fewer regulations for XRP nationwide.
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