The takeaway sale:

  • Monday is the last day on which an XRP holder must file a response to Ripple's motion to dismiss his complaint against the company.
  • This request largely escaped the plaintiff's argument that Ripple sold XRP as an unrecorded security, challenging the case for procedural and evidentiary reasons.
  • The prosecution is unlikely to solve the security issue.
  • Although Ripple has filed a strong defense, the case is far from over and the company is likely to face legal action, according to legal experts.

Monday will bring the next chapter of a long-standing and closely watched lawsuit against Ripple.

The complainant, Barry Sostack, has until the end of the day to file a response to the September 20 rejection request from the startup. Assuming it is not dismissed in its entirety, the case, which seeks to obtain class action status, could be investigated next year.

At the heart of the litigation is an almost existential question: the fact that XRP, the cryptocurrency that Ripple sells periodically to finance its operations, is a security that should have been registered under US law. If that is the case, as the plaintiff's complaint alleges, Ripple could expose itself to possible enforcement action by the regulators.

But the lawsuit will probably not settle the issue, legal experts said.

"Nobody knows if XRP is a short-term security, if ever, at least as part of this procedure," said Rebecca Rettig, a partner at FisherBroyles.

For starters, Ripple's last motion largely evaded the issue. She simply argued that Sostack had waited too long to file his complaint and that he had not adequately demonstrated that he had purchased XRP on the initial sale or Ripple.

And society may never need to tackle the issue – at least not to win this business.

The defense team developed "a solid motion," said Stephen Palley, a partner of Anderson Kill.

"The defense lawyers have done a good job so far," he said. "They showed good tactical skills they could win, but even if they did, a lot of other things could happen."

Ripple's General Counsel did not respond to a request for comment for this article.

Denial without details

While Ripple's motion to dismiss related to the issue of whether the XRP was a security, it did so as a footnote rather than an argument.

Paul Godfrey, a Florida-based lawyer, said that Ripple had made "a statement and a legal conclusion in its introduction," noting that the introduction of the filing categorically declared that "the bulk of the claims (plaintiffs ) is the false assertion that XRP is not a currency, but rather a security. "

The question of whether XRP is a title is a legal conclusion, said Godfrey (who stated that he had not pleaded in federal court and that he was not practicing securities law securities). Although Ripple draws the conclusion, he does not really discuss the fact.

"Ripple does not present any argument to prove such a negation … As a result, it is discussed, but not argued," said Godfrey.

To argue that XRP is not a security would be "too risky of a strategy," Rettig said. Trying to raise this point in the courts would require at least a factual analysis.

Focusing on "simple legal defenses" instead has allowed Ripple to avoid fighting this point, she said:

"If you have independent reasons for dismissal (and) you do not have to embark on a factual analysis, why do it?"

In addition, Ripple's claim that the XRP is not a title is a currency that does not necessarily stand up.

Something can be a currency and always a security or investment contract under securities law, said Palley.

"Basically, it's because it's one thing that does not mean it's not another. It can be a security for one goal and a motto for another. The application of one framework does not exclude another, "he said.

He discussed the ongoing legal battle between the US Securities and Exchange Commission and Kik Interactive, the cryptocurrency affiliate of Kin.

Kik asserted in court that the family is a currency and therefore can not be a security, said Palley (the SEC does not agree with this assessment).

Defensive tactics

Rettig said that Ripple's use of the "status of rest" argument – meaning that the company argued that the defendants were too slow in bringing the lawsuit – was interesting and had been used successfully in other business.

The law of rest is a period of time after the start of the sale where the parties can bring an action for alleged misconduct. It differs from a "statute of limitations" in that it only begins when "the victim has been informed of the misconduct," according to a column by law professor Peter Henning of The New York Times.

"The Resting Status Argument … has been successfully used repeatedly in cases involving Securities Act claims relating to mortgage-backed securities six or seven years ago," he said. which provides a precedent on which the defendants could support, "Rettig explained.

Ripple's use of the facts presented in the Applicant's August complaint also strengthened his request.

"When the plaintiff filed the amended complaint for the first time, there was a lot of talk about its originality and interest in websites, social media, etc.," said Rettig. "It was an interesting tactic and it gave rise to a robust (complaint)."

Ripple took advantage of this tactic to introduce additional facts, however. Rettig explained:

"Defendants can not usually use the facts alleged in the complaint itself or the facts incorporated by reference in a complaint to defend against actions based on a motion to dismiss. Here, however, the accused were able to use all the facts contained in the documents, websites and social media publications mentioned in the complaint to rebut the plaintiff's claims. "

She cited Ripple's use of a wiki page to support her rest status argument, noting that the plaintiffs originally introduced other details on the same wiki page to support their own initial argument.

Godfrey added that Ripple "dealt a fatal blow" to part of the plaintiff's amended claim using the facts provided by the plaintiff.

"By showing that no relief was available for Count 1, Ripple was able to demonstrate that there was no cause of action for Count 2," he said.

Next steps

In the scheduled deposit on Monday, the plaintiff may try to advance the file in different ways.

Rettig said that she thought the plaintiff could either "try to argue a" return relationship "argument, which means that they will try to" bind "the first case filed alleging that Ripple had violated securities laws. " Ripple was sued alleging that he had sold XRP as an unregistered security since at least May 2018.

However, this strategy may not be successful, since Ripple has already argued in his motion that the plaintiff would lose under the Rest Act, Rettig said.

"The plaintiff also relies on the theory of" continuous sale "and can apply this argument to the legal requirement that the law of rest runs from the date the guarantee was" offered in good faith to public, "she said.

Godfrey said the potential discovery process could help plaintiffs verify if they had actually bought XRP from Ripple, stating:

"If I were the plaintiff's attorney … I would focus on the fact that if the inference could not be maintained in the past, with current technology and some well-targeted discoveries, it would be quite easy to determine if the XRP had been purchased by the plaintiffs of the accused. "

Palley noted that because some of the claims were based on secondary market transactions, there could be no private or legal relationship between the Plaintiff and Ripple with the actual purchase of XRP by Sostack.

Godfrey pointed to the recent legal battle between Craig Wright, the creator of Bitcoin, and Ira Kleiman's estate, noting that the judge-magistrate who presided over the case had cited the "evidence trail" provided by Bitcoin transactions.

The XRP protocol and the Interledger protocol also track each transaction, said Godfrey.

Procedurally, Palley emphasized that a course must also be certified, which would also include a lecture on course certification.

The never-ending story

One of Ripple's concerns is the fact that he will likely remain a target for lawsuits even if he wins in this case, Palley said.

It is difficult to sue many companies in the cryptography sector because they have no money. Ripple does not have this problem, given its holdings and its XRP business.

"(With) ICO 's class action lawsuits from the economic point of view, you have to ask yourself … how much money can you recover? Rippling, you have a solid chance of money, "said Palley, adding:

"Even if Ripple wins, it's not necessarily the end, and that's interesting and people do not understand the relationship between civil litigation and enforcement and the criminal, and class actions … that would mean something (if the case was rejected) but does not necessarily mean that it is the end. "

Tobacco companies have a similar problem, where they must win every lawsuit against them. If they lose a single case, the other parties can use this loss as part of their own lawsuits.

"It's not as if winning this case meant that no one else could sue them for rights violations," Palley said.

He also noted that, at least in the current litigation, the claim was limited to an argument of the type "you have not been registered here", but there could also be claims for fraud or under securities law. securities.

This does not mean that the parties can sue Ripple and win, they can just file a complaint.

At the same time, blockchain industry lawyers will closely follow the Sostack case.

"It's not going to be over for a long time," Rettig said.

Ripple CEO Brad Garlinghouse image via CBInsights

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