Ripple ruled to be a ‘seller,’ could face punishment for deceptive marketing

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The class action lawsuit against Ripple Labs may have gained serious momentum thanks to a California court ruling. Even if a digital asset isn’t a security, the court ruled that federal laws targeting unfair, deceptive, or abusive acts or practices (UDAAP) may still apply.

The February 26 hearing was to determine if Ripple violated California’s Unfair Competition Law (UCL). This hearing doesn’t merely affect Ripple; it could mean that hundreds of other projects that deceive their investors may face prosecution. Although an unclear definition of what “unfair” means has become a roadblock.

Ripple’s defense in this class action suit has been to have it all dismissed, as they argue the plaintiff failed to demonstrate that his XRP tokens were purchased “as part of an initiation distribution.”  They don’t believe it’s been proven than Ripple Labs has qualified as a “seller” either.

U.S. District Judge Phyllis Hamilton disagreed, taking the plaintiff’s side that Ripple was indeed a seller. She didn’t totally rule against Ripple though, disagreeing that they’ve misrepresented their business. The plaintiff had 28 days to amend their complaint.

If the judge finally rules that UDAAP laws apply, digital assets that have been marketed similarly to securities, but argue that they are far from it for regulation purposes, could be in a lot of trouble.

With a never ending sale of tokens, Ripple has resembled an initial coin offering (ICO) in many ways, but one that has no end in sight. With no blockchain to speak of behind the project, the project has acted more as a fund raising exercise than a true blockchain project. With marketing that would have investors believing they were buying into in the next big digital asset exchange and remittance network, while occupying the same space in markets as legitimate projects like Bitcoin SV (BSV), it’s hard to see how the project didn’t pursue deceptive practices.

The legal outcome of this suit, and the inevitable outcome for the digital currency space, should be pretty clear. Ripple has been marketing itself as something it’s not: a better way of conducting transactions. For that, they will be punished.