Thread by @jchervinsky

1/ Ripple just filed a motion to dismiss the XRP securities class action. The motion is perfectly designed to delay the case as long as possible & is deeply unsatisfying for those of us who want a ruling on whether XRP is a security.

Here are the highlights & what comes next:

2/ First, a note to all the XRP fans preparing to murder my mentions: I have no view on whether XRP is a security. Only the courts can answer that question now. If anyone tells you they already know the answer, run away. Also, this from my last XRP thread:

https://twitter.com/jchervinsky/status/1109073079232278528

3/ If you aren't a lawyer, the motion may not be much fun for you to read. Ripple makes a dozen separate arguments for dismissal of all seven claims & most involve highly technical issues related to this specific plaintiff, not XRP. See here:
cloudup.com/csNy_2uT5WE

4/ For example, Ripple argues that the plaintiff didn't:

- file the case soon enough
- allege XRP purchases from Ripple directly
- allege an offer or sale of XRP in California
- allege that Ripple's statements influenced his purchases
- plead certain claims "with particularity"

5/ But Ripple *doesn't* argue that XRP is not a security.

Yes, the motion states Ripple's view that XRP is a currency, not a security, but doesn't ask the court to rule on that issue & doesn't analyze it at all, aside from repeating the elements of the Howey test in a footnote.

6/ When you hear the phrase "winning on a technicality," it usually means the defendant prevailed on an argument to the effect of: "it doesn't matter if I did the bad thing you claim I did; the law says you can't do anything about it."

That's the kind of win Ripple's going for.

7/ To be clear: there's nothing wrong with trying to win a case on technical grounds.

Seeking a procedural victory is likely the optimal strategy for Ripple here. It's low-risk, high-reward: even if the motion fails, there's no chance of an adverse ruling on a substantive issue.

8/ Also, "XRP isn't a security" would be a very hard argument to win on a motion to dismiss.

Applying the Howey test requires a fact-intensive analysis, but at this stage, the court has to assume that all the factual allegations made by the plaintiff in the complaint are true.

9/ To argue that XRP isn't a security, Ripple would likely have to offer more evidence regarding, for example, the degree of decentralization of the XRP Ledger.

But that's not allowed on a motion to dismiss. The only valid inquiry is if the complaint alleges a plausible claim.

10/ Perhaps more importantly, the motion is consistent with Ripple's long-running litigation strategy of "delay, delay, delay."

This is a beast of a motion, with many nuanced arguments each requiring independent analysis. It will take a long time for the court to sort this out.

11/ Remember that this lawsuit was first filed on July 3, 2018. Thanks in part to Ripple's delay strategy, it took a year just to figure out whether the case would go forward in state or federal court.

I'd guess it will be at least another year before this motion is resolved.

12/ Are any of Ripple's arguments winners?

Maybe, yes. It's hard to say without the benefit of full briefing, so we'll have to look again after the opposition & reply are filed. At first glance though, I wouldn't be surprised if Ripple knocks out at least some of the complaint.

13/ Still, for those of us interested in resolving whether XRP is a security -- either for XRP's sake alone, or to clarify how the securities laws apply to digital assets broadly -- the motion disappoints.

Ripple could have offered a full-throated defense of XRP. They passed.

14/ While delay is a legitimate strategy, it's not the only one.

Consider Kik, for example, which is embracing the securities issue and racing as fast as possible to the Second Circuit to establish new law. Kik's case is quite different, to be sure, but the contrast is notable.

15/ So, what happens now?

Assuming the current briefing schedule holds, the plaintiff will file an opposition by October 4. Ripple will file a reply by November 4. The court will hear oral argument on January 15, 2020. Then we wait for a decision, likely for another few months.

16/ Because many of Ripple's arguments target deficiencies in the complaint, It's also possible that the court will quickly deny the motion, let the plaintiff amend the complaint one more time, and then let Ripple file another motion afterward.

Then we'd get to wait even longer.

17/ Why would Ripple want to delay, exactly?

There are plenty of reasons. To start, Ripple has a resource advantage. I'd guess plaintiff's counsel won't get paid much until the case is over, so the longer and more expensive this is, the better for Ripple. Delay is the default.

18/ Ripple's critics may assert a different theory: as a large seller of XRP (to the tune of $251 million in Q2 2019 alone), Ripple benefits while XRP's regulatory status remains unclear.

The case also may keep the SEC watching from the sidelines, waiting to see how it resolves.

19/ Eventually I expect this case will settle, because that's how virtually all securities class actions end up (unless dismissed).

But settlement usually doesn't happen until after the class certification stage, and we won't get there for a *very* long time. Think early 2021.

20/ "But Jake, you idiot, other countries have already said XRP isn't a security!"

Sorry, but that isn't relevant here. Most other jurisdictions have much narrower definitions of a "security" & don't follow the expansive Howey test. XRP could still be regulated under US law.

21/ In short, Ripple's motion to dismiss is a well-crafted & tactically effective response to the complaint, but a big disappointment for those hoping this case might yield helpful precedent on how the securities laws apply to digital assets.

Okay, XRP fans. Have at me.

[end]

PS/ Correction, the dates and deadlines for litigating the motion to dismiss are:

- Plaintiff's opposition brief due November 4
- Ripple's reply brief due December 4
- Parties attend oral argument in court on January 15
- The court has no deadline whatsoever to decide the motion