The big Ripple XRP lawsuit update


The biggest update to this nonsensicle lawsuit brought by the SEC against Ripple XRP:

Ripple won the lawsuit brought by the SEC as expected and predicted by letemspin frequently in the past. Millions of public money wasted in an attempt by maxis and fools.

We are not going to pass any judgement on the legal side of this lawsuit. Instead we are going to just list the latest legal update in it’s entirity. The only judgement we can make is that it is really strange that so many people in crypto wish for Ripple to lose this lawsuit. This is a precedent for the whole crypto industry and will affect everyone in the industry from the likes of Stellar who would likely get hit even harder, all the way through to Bitcoin miners who may well be seen as affectively then creating and selling securities.

Are all the anti-Ripplers so ignorant and naive in thinking whatever happens to XRP doesn’t happen to the rest of crypto?

Everyone in crypto should be rooting for Ripple and XRP and thankfully the consensus is that the court case is firmly in Ripples favour.

Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 1 of 40


VLADI ZAKINOV, et al., Plaintiffs,

RIPPLE LABS, INC., et al., Defendants.

Case No. 18-cv-06753-PJH


Defendant Ripple Labs, Inc.’s (“defendant Ripple”), defendant XRP II, LLC’s
(“defendant XRP II”), and defendant Ripple’s Chief Executive Officer, Bradley
Garlinghouse (“defendant Garlinghouse”) (collectively, “defendants”) motion to dismiss
plaintiff Vladi Zakinov’s (“plaintiff”) consolidated class action complaint came on for
hearing before this court on January 15, 2020. Plaintiff appeared through his counsel,
James Taylor-Copeland and Oleg Elkhunovhich. Defendants appeared through their
counsel, Damien Marshall, Kathleen Hartnett, and Menno Goedman. Having read the
papers filed by the parties and carefully considered their arguments and the relevant
legal authority, and good cause appearing, the court hereby GRANTS IN PART and
DENIES IN PART defendants’ motion for the following reasons.
This consolidated putative class action (“In re Ripple”) arises out of the creation,
dispersal, circulation, and sale of “XRP,” a sort of digital units often referred to as a
“cryptocurrency.” In re Ripple comprises various actions alleging both violations of
federal and California state securities laws. Such actions include Coffey v. Ripple et al.,
18-3286, Greenwald v. Ripple et al., 18-4790, Zakinov v. Ripple et al., 18-CIV-2845 (Cal.

Super. Ct. San Mateo Cty.), and Oconer v. Ripple Labs, Inc., 18-CIV-3332 (Cal. Super.
Ct. San Mateo Cty.). The procedural posture of this action is complex and its
restatement here is largely unnecessary. The court need note only that this action is the
only ongoing matter of those referenced above. For more information, the court directs
readers to its February 28, 2019 order denying remand. Dkt. 33.
On August 5, 2019, plaintiff filed the operative consolidated complaint against
defendants. In it, plaintiff alleges the following claims:
1. Violation of Section 12(a)(1) of the Securities Act (Title 15 U.S.C. §
77l(a)(1)) against defendants for the unregistered offer and sale of
securities. Compl. ¶¶ 169-175;
2. Violation of Section 15 of the Securities Act (Title 15 U.S.C. § 77o) against
defendant Ripple and defendant Garlinghouse for control person liability for
the primary violation of Title 15 U.S.C. § 77l(a)(1). Id. ¶¶ 176-183 (together
with U.S.C. § 77l(a)(1), the “federal securities claims”);
3. Violation of California Corporations Code § 25503 against defendants for a
primary violation of § 25110’s restriction on the offer or sale of unregistered
securities. Id. ¶¶ 184-190.
4. Violation of California Corporations Code § 25504 against defendant Ripple
and defendant Garlinghouse for control person liability in connection with
defendants’ primary violation of § 25110. Id. ¶¶ 201-207;
5. Violation of California Corporations Code § 25501 against defendant Ripple
and defendant XRP II, as well as a parallel material assistance claim under
§ 25504.1 against defendant Ripple and defendant Garlinghouse, for
misleading statements in connection with the offer or sale of securities in
violation of § 25401. Id. ¶¶ 191-200;
6. Violation of California Business & Professions Code § 17500 against
defendants for misleading advertisements concerning XRP. Id. ¶¶ 208-212;
7. Violation of California Business & Professions Code § 17200 against

defendants for their unregistered offer or sale of securities in violation of
federal and state law, false advertising practices, misleading statements,
and offense to established public policy. Id. ¶¶ 212-222.
Defendants filed the instant motion to dismiss for failure to state a claim under
Rule 12(b)(6). Dkt. 70. At the core of plaintiff’s claims is that XRP qualifies as a security
under California state and federal law. While plaintiff alleges this legal theory at length in
his complaint, Compl. ¶¶ 121-159, defendants save their dispute with that theory for
another day and assume—solely for the instant motion—plaintiff’s legal position that XRP
qualifies as a security. Dkt. 70 at 11; Dkt. 74 at 9; Dkt. 75 at 7 n.1. Instead, defendants
challenge the complaint on grounds of Title 15 U.S.C. § 77m’s three-year statute of
repose and traditional Rule 12(b)(6) failure to state a claim grounds. Below, the court
provides a summary of the relevant allegations and judicially noticeable facts.
A. The Court Partially Grants Defendants’ Unopposed Requests for Judicial
As an initial matter, defendants request that the court take judicial notice of the
following documents: • The Statement of Facts from the federal government’s May 2015 settlement
with defendants Ripple Labs and defendant Ripple XRP II (predecessor to
defendant XRP II, LLC). Dkt. 70-3. This document is cited or referenced in
the complaint at paragraphs 2 n.2, 25, and 112. • The “Ripple Credits” page from defendant Ripple’s Wiki website. Dkt. 70-4.
This document is cited or referenced in the complaint at paragraphs 24 n.7,
130 n.91, and 145 n.99. • A Quarter One 2018 XRP Markets Report. Dkt. 70-5. This document is
cited at complaint paragraph 36 n.16. • An article titled “Ripple is sitting on close to $80 billion and could cash out
hundreds of millions per month—but it isn’t.” Dkt. 70-6. This document is
cited at complaint paragraph 52 n.31.

Here, the court need not consider the fourth request for judicial notice (Dkt. 70-6)
to resolve defendants’ motion. As a result, the court denies that request. Otherwise,
because plaintiff does not oppose the remaining requests and their underlying documents
are sufficiently cited at the complaint sections noted immediately above, the court grants
defendants’ request for judicial notice of those three documents and will incorporate their
contents by reference in its analysis below.
B. The Parties
1. Defendant Ripple
Defendant Ripple is a Delaware corporation with its principal place of business in
San Francisco. Compl. ¶ 14. While defendant Ripple sells certain enterprise software
products, the primary source of its income is the sale of XRP. Id. ¶ 28.
2. Defendant XRP II
Defendant XRP II is a New York limited liability company with its principal place of
business in San Francisco. Id. ¶ 15. Defendant XRP II’s predecessor is XRP Fund II,
LLC, which was incorporated in South Carolina on July 1, 2013. Dkt. 70-3 ¶ 22.
Defendant XRP II was created to “engage in the sale and transfer of” XRP to “various
third parties on a wholesale basis.” Id.
3. Defendant Garlinghouse
Defendant Garlinghouse is the Chief Executive Officer of defendant Ripple.
Defendant Garlinghouse has held that position since January 2017. Compl. ¶ 16.
Previously, Garlinghouse served as Ripple’s Chief Operating Officer from April 2015
through December 2016. Id.
4. Plaintiff
On June 21, 2019, the court appointed Bradley Sostack as lead plaintiff. Dkt. 60.
Plaintiff is a Florida resident. Id. ¶ 13. Between January 1, 2018 and January 16, 2018,
plaintiff purchased roughly 129,000 units of XRP for approximately $307,700 in other
cryptocurrencies. Id. Plaintiff alleges that he purchased such XRP “from defendants,” id.
¶¶ 172, 187, although he does not specify whether he made such purchase directly from

defendants or incidentally on a cryptocurrency exchange. Plaintiff sold his XRP between
January 9, 2018 and January 17, 2018 for $189,600 in other cryptocurrency, representing
a $118,100 loss in XRP value. Id. ¶ 163. Plaintiff seeks to certify a Rule 23(b)(3) class
that generally includes all persons or entities who purchased XRP. Id. ¶ 160.
C. Relevant Allegations
In 2013, defendant Ripple generated 100 billion units of XRP. Compl. ¶ 2.
Following their creation, defendant Ripple gave 20 billion XRP to its founders and
retained the remaining 80 billion XRP. Id. ¶¶ 2, 22, 23.
1. XRP Escrow Program
Since the XRP’s creation, defendant Ripple has placed a substantial percentage of
XRP that it owns in escrow and developed a plan for when and in what quantities XRP
should be sold. Id. ¶ 5. As of May 2017, defendant Ripple maintained 62 billion XRP.
Id. ¶ 84. At that time, defendant Ripple stated that it would place 55 billion XRP in a
secured escrow account and would only offer and sell limited amounts of XRP at defined
intervals. Id. In an article, defendant Garlinghouse publicly stated that “[o]ur goal in
distributing XRP is to incentivize actions that build trust, utility, and liquidity.” Id. ¶ 86. In
that same publication, Garlinghouse subsequently characterized the XRP distribution as
“ongoing.” Id. Defendants adopted the escrow plan to allow investors “to mathematically
verify the maximum supply of XRP that can enter the market.” Id. ¶ 87.
2. Alleged Offers or Sales of XRP by Defendants
a. Sales Acknowledged in Defendants’ May 2015 Settlement
In May 2015, defendant Ripple and defendant XRP II entered a settlement
agreement with the United States Attorney’s Office for the Northern District of California
(“USAO”) for violation of the Bank Secrecy Act, Title 31 U.S.C § 5330. Id. ¶ 25; Dkt. 70
3. Significantly, plaintiff alleges that, as part of that agreement, defendants
“acknowledged that they sold XRP to the general public.” Compl. ¶ 25 (emphasis
added). The parties’ characterization of the agreement aside, its statement of facts and

violations section identifies the following XRP sale-related conduct by defendants since
• As of the date of the agreement, defendant Ripple “facilitated transfers of
virtual currency and provided virtual currency exchange transaction
services.” Dkt. 70-3 ¶ 2. • “From at least March 6, 2013, through April 29, 2013, Ripple Labs sold
convertible virtual currency known as ‘XRP.’” Id. ¶ 17. • “Throughout the month of April 2013, Ripple Labs effectuated multiple sales
of XRP currency totaling over approximately $1.3 million U.S. dollars.” Id. ¶
20. • “By on [sic] or about August 4, 2013, XRP II was engaged in the sale of
XRP currency to third-party entities.” Id. ¶ 23. • Prior to September 26, 2013, defendant XRP II had “engag[ed] in numerous
sales of virtual currency to third parties.” Id. ¶ 26(a). • On September 30, 2013, defendant XRP II “negotiated an approximately
$250,000 transaction . . . for a sale of XRP virtual currency with a third-party
individual.” Id. ¶ 28(a). • In November 2013, defendant XRP II considered and rejected a roughly
$32,000 transaction. Id. ¶ 28(b). • In January 2014, defendant XRP II considered and rejected an offer from
foreign-based customer who sought to purchase XRP. Id. ¶ 28(c).
Lastly, as part of the settlement, defendant XRP II is described as “created to
engage in the sale and transfer of the convertible virtual currency, XRP, to various third
parties on a wholesale basis.” Id. ¶ 22 (emphasis added).
b. Pre-2017 XRP Sales and Circulation Rates
On or before July 12, 2014, defendant Ripple stated on its website that it “sells
XRP to fund its operations and promote the network.” Compl. ¶ 24; Dkt. 70-4 at 4
(webpage “last modified” on “12 July 2014”). Between December 2014 and July 2015,

defendant Ripple also disclosed the amount of XRP that it held and that in circulation.
Compl. ¶ 26. As of June 30, 2015, defendant Ripple held approximately 67.5 billion XRP.
Id. Of the remaining 32.5 billion XRP in circulation, 20 billion was held by defendants’
founders and some other undisclosed amount was used for “business development
agreements.” Id.
In 2016, defendant Ripple promised but did not execute an agreement with a third
party vendor an option to purchase 5 billion XRP in exchange for access to the vendor’s
consortium of financial institutions. Id. ¶ 104. Aside from this potential transaction,
neither plaintiff nor defendants alleged or proffered any judicially noticeable fact showing
any other specific instances of XRP sales between December 2014 and 2016.
c. Defendants’ Increase Their XRP Sales to the Public in 2017
Defendants sell XRP to retail consumers in exchange for legal tender or other
cryptocurrencies. Id. ¶ 4. Defendants also sell XRP “wholesale to larger investors” as
well as “significant quantities of XRP directly to the general public on cryptocurrency
exchanges.” Id. ¶¶ 30, 127, 156. The earliest indication of XRP’s listing on an exchange
that plaintiff alleges is May 18, 2017. Id. ¶ 44.
Significant to the instant motion, in 2017 and early 2018, defendants rapidly
accelerated their sale of XRP to the public. Id. ¶ 30. During that period, Ripple increased
its efforts to engage in distribution strategies aimed at the general public that would result
in stabilizing or strengthening XRP exchange rates against other currencies. Id. ¶ 5.
Since 2017, defendants have “earned over $1.1 billion through the sale of XRP.” Id. ¶
Plaintiff alleges that defendants, primarily through defendant XRP II, sold the
following amounts of XRP per quarter:
Annual Quarter Amount Allegedly Sold (in USD)
Q2 2017 $31 million
Q3 2017 $52 million
Q4 2017 $91 million
Q1 2018 $167 million
Q2 2018 $154 million
Q3 2018 $81 million
Q4 2018 $129 million
Q1 2019 $169 million
Q2 2019 $251 million
Id. ¶¶ 31-39.
Plaintiff alleges that such sales occurred through some combination of direct,
exchange, institutional, or programmatic sales. Id. As of August 5, 2019, defendant has
not registered XRP with the Securities and Exchange Commission (“SEC”) or qualified it
with the California Commissioner of Corporations. Id. ¶ 12.
3. Public Access to XRP
Defendant Ripple’s website provides advice on “How to Buy XRP” and includes
hyperlinks to exchanges trading XRP. Id. ¶¶ 4, 43, 135. In 2017, defendant Ripple, as
well as its various officers, published tweets concerning or including hyperlinks to such
exchanges. Id. ¶¶ 44-45. As of December 21, 2017, XRP was available for purchase or
sale at over 50 exchanges. Id. ¶¶ 45, 128.
4. Alleged Misstatements concerning XRP
Plaintiff alleges numerous purported misstatements by defendants concerning
XRP, its value, and its status as a non-security. Id. ¶¶ 42-83, 95-97. The court details
those misstatements in its analysis below.
A. Legal Standard
1. Rule 12(b)(6)
A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims
alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199-1200 (9th Cir. 2003). Rule 8
requires that a complaint include a “short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Under Rule 12(b)(6), dismissal “is

proper when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege
sufficient facts to support a cognizable legal theory.” Somers v. Apple, Inc., 729 F.3d 953,
959 (9th Cir. 2013). While the court is to accept as true all the factual allegations in the
complaint, legally conclusory statements, not supported by actual factual allegations,
need not be accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). The complaint
must proffer sufficient facts to state a claim for relief that is plausible on its face. Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 558-59 (2007).
As a general matter, the court should limit its Rule 12(b)(6) analysis to the
contents of the complaint, although it may consider documents “whose contents are
alleged in a complaint and whose authenticity no party questions, but which are not
physically attached to the plaintiff’s pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th
Cir. 2005); Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007) (“a court can consider a
document on which the complaint relies if the document is central to the plaintiff’s claim,
and no party questions the authenticity of the document”). The court may also consider
matters that are properly the subject of judicial notice, Lee v. City of L.A., 250 F.3d 668,
688–89 (9th Cir. 2001), exhibits attached to the complaint, Hal Roach Studios, Inc. v.
Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989), and documents
referenced extensively in the complaint and documents that form the basis of the
plaintiff’s claims, No. 84 Emp’r-Teamster Jt. Counsel Pension Tr. Fund v. Am. W. Holding
Corp., 320 F.3d 920, 925 n.2 (9th Cir. 2003).
Lastly, a district court “should grant the plaintiff leave to amend if the complaint
can possibly be cured by additional factual allegations,” however, dismissal without such
leave “is proper if it is clear that the complaint could not be saved by amendment.”
Somers, 729 F.3d at 960.
2. Rule 9(b)
For actions alleging fraud, “a party must state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. Pro. 9(b). To satisfy Rule 9(b), a plaintiff
must allege “the ‘time, place, and specific content of the false representations as well as

the identities of the parties to the misrepresentations.’” Swartz v. KPMG LLP, 476 F.3d
756, 764 (9th Cir. 2007). “Averments of fraud must be accompanied by ‘the who, what,
when, where, and how’ of the misconduct charged,” and “a plaintiff must set forth more
than the neutral facts necessary to identify the transaction. The plaintiff must set forth
what is false or misleading about a statement, and why it is false.” Vess v. Ciba-Geigy
Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (emphasis in the original). Plaintiff’s
allegations of fraud “must be specific enough to give defendants notice of the particular
misconduct which is alleged to constitute the fraud charged so that they can defend
against the charge and not just deny that they have done anything wrong.” Swartz, 476
F.3d at 764.
B. Analysis
1. Plaintiff’s Claims under the Federal Securities Laws Are Not Barred by
the Statute of Repose
Here, whether Title 15 U.S.C § 77(m)’s three-year statute of repose bars plaintiff’s
federal securities law claims depends upon two distinct issues: (1) the controlling rule for
measuring when the statute of repose commences for purpose of Title 15 U.S.C §
77l(a)(1); and (2) when the alleged (or judicially noticeable) sales of XRP first qualified as
a “bona fide” public offering within the meaning of Title 15 U.S.C. § 77l(a)(1).
The court analyzes each issue in turn.
a. The First Offered Rule Articulated by the Second Circuit in Stolz
Family Controls
Title 15 U.S.C § 77m provides the following in relevant part:
“No action shall be maintained to enforce any liability created under section 77k or 77l(a)(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 77l(a)(1) of this title, unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 77k or 77l(a)(1) of this title more than three years after the security was bona fide offered to the public, or under section 77l(a)(2) of this title

more than three years after the sale.” 15 U.S.C. § 77m (emphasis added). Defendants argue that the statute of repose’s commencement is controlled by the
so-called “first-offered” rule articulated by the Second Circuit in Stolz Family Partnership
L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004) (“Stolz”). Under that rule, “the three-year period
begins when the security is first bona fide offered.” Stolz, 355 F.3d at 100 (italics in the
original) (bold added).
In his briefing, plaintiff primarily argues that when the statute of repose
commences is controlled by the so-called “last-offered” rule stated by the district court In
re Bestline Products Securities and Antitrust Litigation, 1974 WL 386 (S.D. Fla. 1975) and
subsequently adopted by a court in this district in Hudson v. Capital Mgmt. Int’l, Inc., 1982
WL 1384 (N.D. Cal. Jan. 6, 1982). Under that rule, the three-year period begins “on the
date the alleged security was last offered to the public.” In re Bestline, 1975 WL 386 at *2. Explained below, the court adopts the first-offered rule as controlling here.1
In Stolz, the Second Circuit considered two federal securities claims against a
defunct company, one of which was a claim for sale of unregistered securities (labeled
“membership units”) under § 77l(a)(1). 355 F.3d at 95. Plaintiff filed his initial complaint
in February 2001 and his operative pleading on November 19, 2001. Id. In it, plaintiff
alleged that “beginning in or about July, 1997 [sic] and continuously through the
bankruptcy filing . . . [defendant] engaged in a ‘public offering.’” Id. The district court held
that plaintiff’s original complaint was filed “more than three years after the membership
interests were ‘bona fide offered to the public’” and the claim was therefore time barred
under § 77m. Id. at 96.
On appeal, the Second Circuit focused its analysis on the core legal question

1 At oral argument, plaintiff’s counsel effectively abandoned the argument that the lastoffered rule controls. Instead, counsel only briefly mentioned Hudson as “the only in district decision” and then went on at length to discuss Stolz “if the court was to find the reasoning of the Second Circuit in Stolz persuasive.” Despite plaintiff’s apparent concession, because of the significance of selecting the proper doctrine to dispose of defendants’ statute of repose challenge in this motion and to guide the parties in this litigation going forward, the court will explain its decision to choose and apply the firstoffered rule here.

here—namely, “at what point during the bona fide offer does the repose period begin?”
355 F.3d at 98-99. While the Second Circuit advanced several reasons in support of its
determination that the statute of repose is triggered by a defendant’s first bona fide offer
to the public of its allegedly unregistered securities—including the weight of precedent,
statutory interpretation, historical function of statutes of repose, and policy
considerations, 355 F.3d at 100-107—the court finds Stolz’s statutory construction
justification most persuasive.
Significantly, § 77m includes both a three-year statute of repose and a one year
statute of limitations for claims brought under § 77l(a)(1). If the court were to interpret the
statute of repose to commence at the time of the last bona fide public offer, such
interpretation would effectively nullify its effect because “every potential plaintiff
purchasing a defendant’s security during an offering period would have at least three
years before being constrained by the repose period, since each day during which the
offer continued would delay the start of the repose period. Therefore, the statute would
fail to enforce final repose with respect to any plaintiff, with one exception—a plaintiff
whose one-year limitations period was tolled not only for the duration of the offer, but for
the three years subsequent to the end of the offering period.” P. Stolz, 355 F.3d at 105
n.9. Stated differently, under the last-offered rule, the statute of repose would generally
bar a § 77l(a)(1) claim only if such claim fell within a tolling exception to § 77m’s one
year statute of limitations. Absent such an exception, the one-year statute of limitation
would bar the § 77l(a)(1) claim two years before the statute of repose could take effect.
Plaintiff failed to explain how the last-offered rule would not result in such an eviscerating
effect upon the statute of repose, and the court does not see a way to adopt such
construction without rendering the statute of repose “surplusage.” Stolz, 355 F.3d at 105
n.9. Given such inability, the court concludes that the only reasonable way to construe
the statute of repose is by adopting the first-offered construction.
Separately, the court further finds that the authorities urged by plaintiff here in
support of the last-offered rule are unpersuasive. Significantly, as the Second Circuit

correctly noted, Hudson stems from In re Bestline and itself offers no analytical
justification for adopting last-offered rule.2 To support its articulation of the last-offered
rule, the court in In re Bestline provides only the following:
“The defendants’ interpretation of the statute [arguing the firstoffered approach] is simply at odds with the remedial purposes of the Securities Act of 1933. To hold as the defendants suggest would be to give individuals a license to sell unregistered securities to whomsoever they wished if they first offered the security to a group of people and, so to speak, ‘ran the gauntlet’ for three years. It is doubtful that Congress intended the 1933 Act’s goals of registration, disclosure, and private enforcement to be so easily frustrated. As a result, the defendants’ interpretation of [Title 15 U.S.C. § 77(m)] must be rejected in favor of the plaintiffs’ interpretation, according to which the limitations period began on the date the alleged ‘security’ was last offered to the public.” Stolz, 355 F.3d at 102 citing In re Bestline, 1975 WL 386 at *2. While the court appreciates the policy concern identified above, such a concern
does not overcome the statutory interpretation-based justification articulated by Stolz in
support of the first-offered rule. Moreover, as the Second Circuit correctly noted, a
statute of repose is a creature of legislative supremacy that operates independent of
equitable concerns. Stolz, 355 F.3d at 102-03 (“[A] statute of repose begins to run
without interruption once the necessary triggering event has occurred, even if equitable
considerations would warrant tolling or even if the plaintiff has not yet, or could not yet
have, discovered that she has a cause of action.”) (internal citations omitted). By making
§ 77m’s statute of repose applicable to § 77l(a)(1) claims, Congress decided to limit the
availability of such statutory claims. Such decision is contrary to In re Bestline’s doubt
about congressional intent and assertion that the first-offered rule would improperly
undermine § 77l(a)(1)’s remedial purposes.
Further, when articulating the last-offered rule, the court in In re Bestline
incorrectly characterized § 77m’s three-year statute of repose as a “statute of limitations.”
In re Bestline, 1975 WL 386, at *1 (“One of the more hotly contested issues is whether

2 Hudson, 1982 WL 1384, at *3 n. 3 (“The relevant offering is the last offering of the security [citing In re Bestline] . . . That date should be pled.”).

the claims of the plaintiff class under section 12(1) of the Securities Act of 1933 are
barred by the Statute of Limitations contained in section 13 of the Act. In pertinent part,
section 13 reads: No action shall be maintained to enforce any liability created under . . .
section 12(1), unless it is brought within one year after the violation upon which it is
based. In no event shall any such action be brought to enforce a liability created under . .
. section 12(1) more than three years after the security was bona fide offered to the
public. . . The defendants take the position that the underscored language should be
interpreted to mean that an action under section 12(1) may not be brought more than
three years after the security was first offered to the public.”) (italics in the original) (bold
italics added). As explained in Stolz, Congress recognizes a significant distinction between the function of a statute of repose and a statute of limitation.3 Because the court
in In re Bestline incorrectly characterized § 77m’s statute of repose as a statute of
limitations, it appears to have failed to account for the absolute nature of the three-year
statute of repose when advancing its “remedial purposes” policy critique. Given this
shortcoming, too, the court rejects the last-offered rule.
Lastly, plaintiff cites the Supreme Court in Cal. Public Employees’ Retirement Sys.
v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017) for the proposition that § 77m’s statute of
repose “runs from the defendants’ last culpable act (the offering of the securities) . . .” Id.
at 2049. This citation fails to provide any guidance on the critical issue here: namely,
whether the subject offering means first- or last-bona fide offering. Further, the Supreme
Court in ANZ Securities did not consider the application of § 77m’s statute of repose to
an unregistered securities claim under § 77l(a). Instead, it considered the applicability of
that section to a subsequent suit alleging a misrepresentation claim initiated by a plaintiff

3 Stolz, 355 F.3d at 102 (“Statutes of limitations bear on the availability of remedies and, as such, are subject to equitable defenses . . . the various forms of tolling, and the potential application of the discovery rule. In contrast, statutes of repose affect the availability of the underlying right: That right is no longer available on the expiration of the specified period of time. In theory, at least, the legislative bar to subsequent action is absolute, subject to legislatively created exceptions . . . set forth in the statute of repose.”) citing Calvin W. Corman, Limitation of Actions, § 1.1, 4-5 (1991).

who was previously a member of a putative class action brought within the period of
repose. 137 S. Ct. at 2047. If the Supreme Court sought to reject the first-offered rule—
much less overrule a “vast majority” of lower court’s adopting the first-offered rule, Stolz,
355 F.3d at 100—it would not have done so by vague reference in an inapposite case.
In short, in the absence of controlling Ninth Circuit or Supreme Court authority, the
court has discretion to choose the applicable rule for determining when § 77m’s statute of
repose commences. Because the first-offered rule is better reasoned than its last-offered
counterpart, the court adopts it as controlling here.
b. The First Offered Rule Does Not Bars Plaintiff’s Federal
Securities Claims
Having decided the controlling rule for determining when the statute of repose
commences, the next issue is its application. Based on the allegations and judicially
noticeable facts, the court concludes that defendants did not make their first bona fide
public offering of XRP before August 5, 2016 (three years prior to plaintiff’s filing of his
federal securities claims in this action on August 5, 2019).
As a preliminary matter, defendants assert that “plaintiff must allege facts to show
compliance with Section 13 [Title 15 U.S.C. § 77m].” Dkt. 70 at 16. In support,
defendants cite Toombs v. Leone, 777 F.2d 465, 469 (9th Cir. 1985). Plaintiff responds
that the Ninth Circuit in Johnson v. Aljian, 490 F.3d 778 (9th Cir. 2007) “criticized”
Toombs, “observed” that a plaintiff does not need to allege facts that negate a potentially
applicable affirmative defense to survive an attack on the pleadings, and “urged” courts to
discard such a requirement. Dkt. 74 at 11 n.2. Defendants fail to address plaintiff’s
response in their reply. Both parties overstate their respective authority.
Plaintiff is correct that the Ninth Circuit in Johnson subsequently criticized Toombs
and urged disregarding its requirement. Johnson v. Aljian, 490 F.3d 778, 782 (9th Cir.
2007) (“We followed such general rule in Toombs v. Leone, 777 F.2d 465 (9th Cir.1985),
holding that ‘the plaintiff must affirmatively plead sufficient facts in his complaint to
demonstrate conformity with the statute of limitations’ if he is to make out a violation of

Section 12 of the Securities Act of 1933. . . . This rule has incurred forceful, and we think
justified, criticism.”). However, Johnson does not stand for the proposition that “it is not
the plaintiff’s burden to negate an affirmative defense on the pleadings.” Rather,
Johnson expressly recognized that Toombs’ “disapproved pleading rule may survive in
this circuit with respect to Section 12.” 490 F.3d at 782 n.13 (emphasis added).
Contrary to defendants’ suggestion, Toombs does not require that plaintiff allege
facts showing compliance with § 77m’s statute of repose. Instead, Toombs requires
only that a plaintiff alleging a §77l claim must plead compliance with § 77m’s statute of
limitations. Toombs, 777 F.2d 465, 468 (9th Cir. 1985) (“In asserting a violation of
Section 12, the plaintiff must affirmatively plead sufficient facts in his complaint to
demonstrate conformity with the statute of limitations.”). Defendants failed to offer any
authority in support of extending Toombs’s pleading requirement to the statute of repose.
Given the Ninth Circuit’s more recent criticism of that requirement in Johnson, the
court concludes that plaintiff need not affirmatively allege that his federal securities claims
comply with the statute of repose. This conclusion is further supported by the general
rule that a plaintiff need not anticipate or negate an affirmative defense in his or her
pleadings. Perry v. Merit Sys. Prot. Bd., 137 S. Ct. 1975, 1987 (2017) (“In civil litigation,
a release is an affirmative defense to a plaintiff’s claim for relief, not something the
plaintiff must anticipate and negate in her pleading.”). The court now turns to whether
plaintiff alleged sufficient facts showing a timely first bona fide public XRP offering.
In Stolz, the Second Circuit interpreted § 77m’s “bona fide” public offering
requirement to mean “when was the stock really and truly (genuinely) being offered to the
public, as opposed to, say, a simulated offering.” Id. at 99. The Second Circuit
emphasized that the phrase “bona fide” qualified “public,” rather than “first,” offering to the
public, id. citing Louis Loss & Joel Seligman, Securities Regulation § 2–B–6, n.285 (3d
ed.1996), and passingly footnoted that courts may find a first bona fide offer based upon
a defendant’s “clear objective attempts to secure purchasers,” id. at 104 n.7. Aside from
the above, the Second Circuit offered no explanation about what sort of offers may

qualify as “bona fide” public offers and its application of the bona fide offer standard
provides no insight. 355 F.3d at 95, 106 (concluding that defendant “bona fide offered to
the public the security at issue . . . in July 1997” based upon the allegation “in paragraph
16 that beginning in or about July 1997 and continuously through the bankruptcy filing.”).
Here, based on plaintiff’s complaint and the judicially noticeable facts proffered,
the court cannot conclude that defendants’ first bona fide public offer to sell XRP
occurred before August 5, 2016. While defendants did acknowledge various 2013 offers
and sales in their May 2015 settlement with the USAO, the sales activity identified in that
settlement does not show that defendants targeted the general public when offering to
sell XRP. Instead, the activity identified in that agreement either shows that defendants
attempted or consummated particular transactions with specific third-party individuals or
entities, Dkt. 70-3 ¶¶ 23, 26(a), 28(a), 28(c), or generally refers to the existence of
defendants’ sales activity without defining the scope of the market for such sales, id. ¶¶
17, 20.
Similarly, the complaint’s reference to an unexecuted agreement between
defendants and a third-party vendor in 2016, Compl. ¶ 104, is no different than the
handful of person-specific transactions noted in defendants’ May 2015 settlement.
Moreover, the limited nature of defendants’ pre-settlement agreement sales activity is
further shown by the settlement’s description of defendant XRP II as “created to engage
in the sale and transfer of the convertible virtual currency, XRP, to various third parties
on a wholesale basis.” Dkt. 70-3 ¶ 22 (emphasis added).
At oral argument, defendants reiterated that plaintiff, by his own pleading, admitted
the public nature of their pre-2017 sales. To support that assertion, defendants cite
paragraph 25 of the complaint, which alleges that defendants “acknowledged that they
sold XRP to the general public,” Dkt. 70 at 17, and the heading to Section IV of the
complaint, which is titled “XRP Genesis and Public Offerings,” Dkt. 70 at 17. Plaintiff’s
counsel then fell on that sword, acknowledging that the term “general” in paragraph 25 is
mistaken and representing that the purpose of that paragraph was to summarize the

handful of transactions detailed in the May 2015 settlement.
While the court agrees with defendants that plaintiff’s own apparently mistaken
characterization of defendants’ pre-May 2015 sales activities as involving the “general
public” tend to belie his subsequent assertion that such activities did not qualify as a bona
fide public offering, the court finds that plaintiff’s aberrational use of the terms “public
offering” and “general public” are the sort of conclusory labels that it need not accept as
true on a motion to dismiss. Heimrich v. Dep’t of the Army, 947 F.3d 574, 577 (9th Cir.
2020) (“The complaint ‘does not need detailed factual allegations,’ but the plaintiff must
provide more than ‘labels and conclusions’ to withstand scrutiny under Rule 12(b)(6).”).
Instead, the court examines the substance of the actual sales activity alleged and
judicially noticeable. Based on that examination, the court cannot conclude that
defendants made their first bona fide public offer before August 5, 2016.
Such conclusion is separately supported by the substantial volume of XRP sales
that allegedly occurred after August 5, 2016. Significantly, the first date alleged detailing
when defendants listed XRP on a cryptocurrency exchange is May 18, 2017. Compl. ¶
44. Around this same time, individuals purchased $31 million worth of XRP, comprising
$21 million in sales to “market participants” directly and $10 million in exchange sales.
Id. ¶ 39. From 2017 Q2 onward, purchases by direct market participants, exchange
participants, programmatic participants, and institutions rose from tens of millions to over
$250 million quarterly. Id. ¶¶ 31-39. Such volumes of sales are greater than the handful
of one-off multi-thousand-dollar transactions and $1.3 million in monthly sales detailed in
the May 2015 settlement. Such a material change supports the inference that the
defendants did not make their first genuine attempt to sell to the public until 2017.
Lastly, at oral argument, defendants contended that the court could find a bona
fide public offer prior to the May 2015 settlement agreement based upon the fact that the
government investigated and prosecuted defendants for sales-related activities prior to
such agreement. Defendants failed to proffer any authority in support of such a
categorical position and, in any event, the May 2015 settlement agreement—which

defendants requested this court take judicial notice of—speaks for itself. Already
discussed at length above, that agreement specifies only a handful of individualized
transactions and does not describe the culpable sales activities as public in nature.
The court cautions that, once the parties have developed a factual record, it may
revisit its determination on whether defendant made their first bona fide XRP offer to the
public before or after August 5, 2016. However, based upon the allegations and judicially
noticeable facts properly before this court on this motion, the court cannot find that such offer occurred outside the three-year statute of repose.4 As a result, the court concludes that § 77m does not bar plaintiff’s federal securities claims at this juncture.5
2. Plaintiff Adequately Alleged the Federal Securities Claim Against
Title 15 U.S.C § 77l(a)(1) provides the following in relevant part:
“Any person who—

(1) offers or sells a security in violation of section 77e of this title, or

. . .

shall be liable, subject to subsection (b), to the person purchasing such security from him . . .” 15 U.S.C § 77l(a)(1). Title 15 U.S.C § 77e(a)(1) provides the following:
“Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly—

. . .

(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell

4 Even if Toombs required plaintiff to include allegations negating the statute of repose’s application here, defendants’ two-line challenge on this issue fails to explain how plaintiff’s allegations of increased sales activities starting in 2017, Compl. ¶¶ 5, 30-39, 45, 128, does not satisfy such obligation. 5 Because the court cannot conclude that the allegations support finding a bona fide public offer before August 5, 2016, it need not determine whether defendants’ sale of XRP qualified as multiple separate offerings, Dkt. 74 at 12-15, as opposed to a so-called “slow offer” of the same security over a prolonged period, Dkt. 70 at 19, whether applying the statute of repose here would be inequitable, Dkt. 74 at 16-17, or whether his complaint relates back to the Coffey action, id. at 17 n.7.

such security through the use or medium of any prospectus or otherwise;” 15 U.S.C. § 77e. Here, defendants argue that plaintiff failed to state a claim under § 77l(a)(1) on the
following two grounds: (1) he failed to allege that he purchased his XRP as part of an
“initial distribution”; and (2) he failed to allege that defendants qualify as “sellers” within
the meaning of that section. The court analyzes each challenge in turn.
a. Title 15 U.S.C § 77l(a)(1) Does Not Require Plaintiff to Have
Purchased His XRP in an “Initial Distribution”
Here, defendants contend that, to state a claim under § 77l(a)(1), plaintiff must
allege that he purchased his XRP as part of an “initial distribution” of stock, as opposed to
on the “secondary open market.” Dkt. 70 at 20. In support of that contention, defendants
primarily rely upon Gustafson v. Alloyd Co., 513 U.S. 561 (1995).
In Gustafson, the Supreme Court interpreted the scope of the term “prospectus” as
used in Title 15 U.S.C. § 77l(a)(2). Gustafson, 513 U.S. at 564 (“Under § 12(2) of the
Securities Act of 1933 buyers have an express cause of action for rescission against
sellers who make material misstatements or omissions ‘by means of a prospectus.’ The
question presented is whether this right of rescission extends to a private, secondary
transaction, on the theory that recitations in the purchase agreement are part of a
‘prospectus.’”). It held that that term “refer[s] to a document that describes a public
offering of securities by an issuer or controlling shareholder.” Id. at 584. While
Gustafson might suggest that claims under § 77l(a)(2) are limited to misrepresentations
made only in connection with initial distributions of securities, id. at 573 (“[plaintiff
purchaser], as well as Justice THOMAS in his dissent, respond that if Congress had
intended § 12(2) to govern only initial public offerings, it would have been simple for
Congress to have referred to the § 4 exemptions in § 12(2)”), such suggestion is unclear
and, in any event, would be limited to the § 77l(a)(2) claims at issue there.
In support of their proffered position, defendants further rely upon Gustafson’s
citation to another Supreme Court case, Blue Chip Stamps v. Manor Drug Stores, 421
U.S. 723 (1975). Contrary to defendants’ characterization of that citation, the Supreme

Court in Gustafson did not cite Blue Chip Stamps “for [the] proposition that [the] Securities Act extends only to ‘initial distributions of newly issued stock from corporate
issuers.’” Dkt. 75 at 13 (emphasis added). Instead, the Supreme Court in Gustafson
cited Blue Chips Stamps for the following proposition:
“The primary innovation of the 1933 Act was the creation of federal duties—for the most part, registration and disclosure obligations—in connection with public offerings. See, e.g., . . . Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 752, 95 S.Ct. 1917, 1933, 44 L.Ed.2d 539 (1975) (“The 1933 Act is a far narrower statute [than the Securities Exchange Act of 1934 (1934 Act)] chiefly concerned with disclosure and fraud in connection with offerings of securities—primarily, as here, initial distributions of newly issued stock from corporate issuers”).” Gustafson, 513 U.S. at 571-72 (emphasis added) (brackets in the original). Given that “primary” is less restrictive than “only,” defendants’ position—again—
overreaches. As a result, defendants’ reliance upon Gustafson is misplaced.
Such mistake is further shown by the text of § 77l(a)(1) and its incorporated
reference to § 77e. Unlike § 77l(a)(2), which applies to certain sale of securities “by
means of prospectus or oral communication,” § 77e(a)(1) prohibits the sale of an
unregistered security “through the use or medium of any prospectus or otherwise.” 15
U.S.C. § 77e(a)(1) (emphasis added). Because subsection (a)(1) provides a broader
basis for assigning liability than its subsection (a)(2) counterpart, the court further rejects
defendants’ position and concludes that it may consider a § 77l(a)(1) claim premised
upon a purchase outside the initial distribution context. Given the above, plaintiff’s §
77l(a)(1) claim does not fail for want of purchasing his XRP in an initial distribution.
b. Plaintiff Has Alleged that Defendants Qualify as “Sellers” for
Purpose of His Federal Securities Claims
Next, while the parties agree that a “seller” within the meaning of § 77l(a)(1)
extends to a person who either (1) passes title of the security to the buyer or (2) solicits
the purchase with a self-interested financial motive, Dkt. 70 at 22; Dkt. 74 at 18-19 (both
citing Pinter v. Dahl, 486 U.S. 622, 641-42 (1988)), they disagree about such standard’s

application to defendants.6 With respect to showing seller status under a solicitation
theory, courts acknowledge that “any person who engaged in steps necessary to the
distribution of the unregistered security is liable.” Balestra v. ATBCOIN LLC, 380 F.
Supp. 3d 340, 357-58 (S.D.N.Y. 2019).
Here, plaintiff argues that defendants respectively qualify as “sellers” under the
solicitation theory. Significantly, plaintiff alleges that defendants systematically marketed
XRP and financially benefited from such efforts. On the latter point, plaintiff alleges that
from early 2017 to 2018 alone, defendants “have earned over $1.1 billion through the
sale of XRP.” Compl. ¶ 30. On the former point, plaintiff alleges that defendants
published various tweets, interviews, and articles pushing the adoption of XRP, id. ¶¶ 44,
45, 48-52, hosted conferences concerning XRP’s use, id. ¶ 46, explained on its website
how to purchase XRP and included a link to cryptocurrency exchanges for such
purchases, id. ¶ 43, and even began to lobby Congress and the SEC to adopt
cryptocurrency friendly laws, id. ¶ 54. Such alleged efforts by defendants, if proven, are
more than sufficient to establish their status as sellers under a solicitation theory.
Balestra, 380 F. Supp. 3d at 358 (“These promotional statements trumpeting the potential
of the ATB Coin and the ongoing opportunity to invest in the ATB ICO [initial coin offering] . . . clearly reflect both [defendants’] efforts to solicit the sale of ATB Coins. . . . I therefore
conclude that the allegations set forth in the Complaint plausibly allege that both
[defendants] engaged in steps necessary to the distribution of the unregistered security . .
.”). Given that, plaintiff alleges sufficient facts that defendants qualify as sellers for

6 In their reply, defendants cite a footnote from Pinter stating that “§ 12(1) imposes liability on only the buyer’s immediate seller; remote purchasers are precluded from bringing actions against remote sellers. Thus, a buyer cannot recover against his seller’s seller.” Dkt. 75 at 16 citing Pinter, 486 U.S. at 644 n.21. Defendant failed to explain how this statement (tucked away in a footnote to a section discussing which sellers may be held liable for passing title to a security) limits its recognition that a person may separately be found liable under a solicitation theory. Id. at 644 (“The [actual purchase of a security] requirement, however, does not exclude solicitation from the category of activities that may render a person liable when a sale has taken place.”). Without more, the court rejects any suggestion that defendants may not be held liable under a solicitation theory because they are remote sellers.

purpose of plaintiff’s § 77l(a)(1) claim. As a result, plaintiff sufficiently alleged his §
77l(a)(1) claims against defendants.
c. Plaintiff Adequately Alleged a Title 15 U.S.C. § 77o Claim
Against Defendant Ripple and Defendant Garlinghouse
Title 15 U.S.C. § 77o provides the following:
“Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under sections 77k or 77l of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.” 15 U.S.C. § 77o(a). “To establish a prima facie case of control-person liability, a plaintiff must prove a
primary violation of the federal securities laws, and that the defendant exercised actual
power or control over the primary violator.” In re Harmonic, Inc., Sec. Litig., 2006 WL
3591148, at *5 (N.D. Cal. Dec. 11, 2006). “Control means the ‘possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or otherwise.’”
Maine State Ret. Sys. v. Countrywide Fin. Corp., 2011 WL 4389689, at *12 (C.D. Cal.
May 5, 2011).
Here, plaintiff alleges that defendant Ripple and defendant Garlinghouse “directly
or indirectly controlled the primary violator,” defendant XRP II. Compl. ¶¶ 14-16, 177-83.
Defendants do not dispute that such allegations suffice to establish control person liability
under § 77o. Dkt. 70 at 24-25 (focusing their single paragraph analysis on defendant
Garlinghouse’s control person liability on only plaintiff’s purported failure to state a
primary violation); Dkt. 75 at 16 (contending only that plaintiff does not dispute that the
statute of repose equally applies to this claim as well, and that “this claim is derivative of
and dependent on his Section 12(a)(1) claim.”). Because plaintiff has stated an
actionable claim for a primary violation of §77l(a)(1) and defendants failed to challenge

the viability of plaintiff’s allegations that defendant Garlinghouse controlled such
defendants, the court concludes that plaintiff adequately alleged his § 77o claims against
defendant Ripple and defendant Garlinghouse.
3. Plaintiff Adequately Alleged Unqualified Securities Claims under
California Corporations Code §§ 25110, 25503, and 25504
a. Plaintiff Alleged a Claim under California Corporations Code §
25503 for Violation of § 25110’s Qualified Securities
“Among other things, the [California Securities Law of 1968] Act prohibits the sale
of securities in an issuer transaction unless the sale has been ‘qualified’ in accordance
with statutory requirements.” Apollo Capital Fund, LLC v. Roth Capital Partners, LLC,
158 Cal. App. 4th 226, 249 (2007) (citing California Corporations Code § 25110). § 25110
makes it “unlawful for any person to offer or sell in this state any security in an issuer
transaction . . . whether or not by or through underwriters,” unless such sale satisfies
certain qualifications (which defendants here do not contest). Cal. Corp. Code § 25110.
California Corporations Code § 25503 further provides the following:
“[a]ny person who violates Section 25110 . . . shall be liable to any person acquiring from him the security sold in violation of such section, who may sue to recover the consideration he paid for such security with interest thereon at the legal rate . . . or for damages, if he no longer owns the security, or if the consideration given for the security is not capable of being returned.” Cal. Corp. Code § 25503. Here, defendants argue that plaintiff failed to state a claim for violation of § 25110
on the following three grounds: (1) he failed to allege that he purchased his XRP as part
of an “issuer transaction”; (2) he failed to allege that he purchased his XRP from
defendants, in satisfaction of § 25503’s purported privity requirement; and (3) he failed to
allege that defendants offered or sold XRP in California. The court analyzes each in turn.

i. Plaintiff Has Adequately Alleged an “Issuer Transaction”
for Purpose of His California Corporations Code § 25503
Here, defendants argue that § 25110 requires that plaintiff purchase the subject
security from defendants directly as part of an “issuer transaction,” which, they contend,
“are sales of securities purchased from the issuing corporation in a public offering.” Dkt.
70 at 25. In support of their position, defendants primarily rely upon Mirkin v.
Wasserman, 5 Cal. 4th 1082, 1104 (1993) and California Corporation Code § 25011.
In Mirkin, the California Supreme Court implied a distinction between an “issuer
transaction” under § 25110 and certain “aftermarket transactions,” which it generally
defined as “resales of securities after they have been purchased from the issuing
corporation in a public offering.” Mirkin, 5 Cal. 4th at 1104. Although the California
Supreme Court subsequently characterized its discussion in Mirkin about the California Corporation Code as dicta,7 the court in Mirkin noted that § 25110 is limited to the sale of
unqualified securities made as part of an “issuer transaction.” Mirkin, 5 Cal. 4th at 1104
(citing § 25110 for the proposition that “the Legislature knew how to write a statute that
addressed only issuer transactions when that was what it intended to do.”) (emphasis
added). Based on Mirkin’s dicta, then, defendants are correct that, to state a claim under
§ 25110, a plaintiff must have purchased his security as part of an “issuer transaction.”
However, the question remains whether plaintiff’s alleged subsequent purchases
on an exchange that defendants sold to nonetheless qualifies as an “issuer transaction”
for purpose of stating a claim for violation of § 25011. Significantly, § 25011 provides the
following in its entirety:
“‘Nonissuer transaction’ means any transaction not directly or indirectly for the benefit of the issuer. A transaction is indirectly

7 Diamond Multimedia Sys., Inc. v. Superior Court, 19 Cal. 4th 1036, 1044–45 (1999) (“Mirkin is not dispositive, however, as the quoted statement was dictum and was not made with reference to the place at which a section 25500 plaintiff bought or sold stock. . . . Liability under [California Corp. Code] sections 25400 and 25500 was not in issue.”).

for the benefit of the issuer if any portion of the purchase price of any securities involved in the transaction will be received indirectly by the issuer. An offering which involves both an issuer transaction and a nonissuer transaction shall be treated for the purposes of Chapters 2 (commencing with Section 25110) and 4 (commencing with Section 25130) of Part 2 of this division as an issuer transaction, but for the purposes of Chapter 1 (commencing with Section 25100) of Part 2 of this division they shall be treated as separate transactions.” Cal. Corp. Code § 25011 (emphasis added). Plaintiff’s § 25503 claim arises under § 25110, which is codified at California
Corporations Code Chapter 2, Part 2 of Division 1. As a result, § 25011 definition of
“issuer transaction” applies. Defendants do not contest that their decision to initially list
XRP on an exchange would qualify as an offering that, under their own proffered
definition of an issuer transaction (Dkt. 70 at 25), gives rise to a qualifying transaction.
Plainly, the purpose of listing XRP on an exchange is for market participants (like plaintiff)
to then purchase such XRP. Absent such subsequent purchases, defendants’ listings
would fail. Whether such subsequent purchases qualify as an “issuer transaction” (under
defendants’ proffered definition) or instead fall outside that definition as “nonissuer”
transactions is therefore beside the point here: because defendants’ XRP exchange
listings depended upon subsequent third-party purchases, it necessarily “involved” such
transactions. As a result, any purchase of XRP by plaintiff on an exchange qualifies as
an issuer transaction under § 25011 and, therefore, for purpose of his § 25503 claim.
ii. Plaintiff Adequately Alleged Privity with Defendants
Next, defendants contend that § 25110 includes a privity requirement and that
plaintiff failed to allege facts satisfying such requirement. While the court agrees that, to
state a claim under § 25503 for violation of § 25110, plaintiff must allege privity with
defendants, the court concludes that plaintiff satisfied that requirement.
California Corporations Code § 25503 provides the following in relevant part:
“Any person who violates Section 25110 . . . shall be liable to any person acquiring from him the security sold in violation of such section . . .” Cal. Corp. Code § 25503 (emphasis added). To support their interpretation of this section, defendants primarily rely upon
Bowden v. Robinson, 67 Cal. App. 3d 705 (1977). The court in Bowden interpreted §

25503 and § 25110 to “create liability affording the immediate purchaser several
specific remedies.” 67 Cal. App. 3d at 712 (emphasis added). The court in Bowden
explained that “[t]he Legislature, in section 25503, by the words ‘any person acquiring
from him’ has required privity, with some exceptions, as a condition of recovery.” Id.
To support his competing interpretation, plaintiff primarily relies upon Moss v.
Kroner, 197 Cal. App. 4th 860 (2011), which, according to plaintiff, stands for the
proposition that whether privity is required depends upon which remedy is available
against the primary violator of the statute. Dkt. 74 at 24. Contrary to plaintiff’s
suggestion, the court in Moss did not consider the privity requirement for primary liability
claims pursuant to § 25503. Instead, the court in Moss considered whether California
Corporation Code’s secondary liability sections (§ 25504 and §25504.1) required privity
between plaintiff and secondary violators. Moss, 197 Cal. App. 4th at 871-72. While the
court in Moss recognized that privity is not required to recover damages against a
defendant on a secondary liability theory under § 25504 and § 25504.1, it acknowledged
that, to state a primary violation claim under § 25503, plaintiff must show privity with the
primary violator. Moss, 197 Cal. App. 4th at 878 (“While we agree . . . that ordinary
principles of rescission require strict privity in order to rescind contracts . . . we conclude
that the Legislature, when it enacted sections 25504 and 25504.1, intended to depart
from those principles by placing these certain secondary actors in the shoes of the
principal violator for the purpose of civil liability as long as the original direct violator
was in privity with the plaintiff.”) (emphasis added).
Plaintiff’s remaining authority (Openwave Systems, Inc. v. Fuld, 2009 WL 1622164
(N.D. Cal. June 6, 2009)) similarly does not consider privity in the context of primary
liability claims brought under § 25503. Id. at *5-9. Based on Bowden, the court concludes
that plaintiff must allege privity to state a claim under § 25503.
The court finds that plaintiff plausibly alleged that he purchased his XRP from
defendants for purpose of stating a primary violation claim under § 25503. As an initial
matter, plaintiff alleges that he, along with members of the putative class, “purchased

XRP securities from defendants.” Compl. ¶¶ 172, 187. While the court recognizes that
the above allegations do not specify a direct purchase, they also do not foreclose any
inference of such purchase. Significantly, as plaintiff pointed out at oral arguments its
129,000 XRP unit purchase during 2018 Q1, when compared to defendants sale of 0.095
percent of the XRP traded on the market that quarter, supports the inference that plaintiff
purchased approximately 122 XRP units from defendant (or approximately 19 XRP units,
discounting for plaintiff’s two week trading period and reasonably assuming uniform
distribution of sale by defendant during that period).
This conclusion is further supported by the more glaring (but largely unaddressed)
issue presented by this claim—namely, to what extent may defendants be considered in
privity with an exchange purchaser when a subsequent purchase qualifies as part of an
issuer transaction under § 25011. In any event, at this stage in the litigation, where the
court may draw reasonable inferences and the relationship between defendants,
subsequent purchasers, and the exchange is unclear, the court concludes that plaintiff
has adequately alleged privity in support of his § 25503 claim, though he may ultimately
be unable to prove it.
iii. Plaintiff Adequately Alleged that Defendants Offered the
Subject Securities in California
To state a claim premised upon a violation of § 25110, a plaintiff must allege that
the subject securities were offered or sold in California. Diamond Multimedia Sys., Inc.,
19 Cal. 4th at 1053. California Corporations Code § 25008(a) provides that an offer or
sale of a security is made in California under any of the following conditions: • When an offer to sell is made in this state; • When an offer to buy is accepted in this state; or • If both the seller and purchaser are domiciled in this state, the security is
delivered to the purchaser in this state. Cal. Corp. Code § 25008(a).
The California Supreme Court has acknowledged that an advertisement may
qualify as an offer if it “invite[s] the performance of a specific act without further

communication and leave nothing for negotiation.” Donovan v. RRL Corp., 26 Cal. 4th
261, 271 (2001), as modified (Sept. 12, 2001).
Here, plaintiff adequately alleged that defendants offered to sell XRP in California.
Significantly, plaintiff alleges that defendant Ripple “has an entire section of its website
dedicated to providing advice on ‘How to Buy XRP,’” and that such section “provides links
to exchanges and instructions on ‘how to buy XRP’ on those exchanges,” Compl. ¶¶ 43,
135. The court concludes that this information qualifies as an offer via advertisement
because the link invites the performance of a specific act (the purchase of XRP on an
exchange) without any further communication (because the guide explains how to
complete the purchase). Given the nature of exchanges, the court may reasonably infer
that the conversion rate (e.g., USD to XRP) is set by the market and therefore not subject
to particularized negotiation. Such inference is further supported by the “fungible” (i.e.,
interchangeable or non-unique) nature of each XRP unit exchanged. Further, because
defendant Ripple allegedly posted the guide and hyperlink on its website, the court may
reasonably infer that such materials were accessible to individuals in this state. As a
result, plaintiff has adequately alleged that defendants offered the subject unregistered
securities “in this state” for purpose of his § 25503 claim.8
b. Plaintiff Adequately Alleged California Corporate Code § 25504
Control Person Liability Claims against Defendant Ripple and
Defendant Garlinghouse for Violation of § 25110
California Corporations Code § 25504 provides the following:
“Every person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the

8 Defendants also fail to provide any authority interpreting Code § 25110’s “in this state” requirement to apply to only an offer or sale of a security purchased by plaintiff (as opposed to similar such securities sold/offered to other third parties in California more generally). Given that failure, defendants’ suggestion that such requirement applies, Dkt. 70 at 26, does not alter this conclusion.

violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.” Cal. Corp. Code § 25504.
This section “imposes ‘control person’ liability on those who assist others in
primary violations under the California Securities Act.” Jackson v. Fischer, 931 F. Supp.
2d 1049, 1064 (N.D. Cal. 2013). “[I]n the absence of a viable claim of primary liability,
plaintiff cannot state a claim against the D & O defendants for control person liability
under § 25504.” Id. at 1064.
Here, defendants contend only that “[b]ecause Plaintiff’s unqualified securities
claim fails, his control person liability claim also fails.” Dkt. 70 at 27. Defendants do not
contest that plaintiff’s allegations that defendant Ripple and defendant Garlinghouse
“directly or indirectly controlled the primary violator” defendant XRP II, Compl. ¶¶ 14-16,
177-83, suffice to establish control person liability. As analyzed above, plaintiff alleged a
primary liability claim under § 25503 for violation of § 25110. As a result, plaintiff has
alleged control person liability claims under § 25504 against defendant Ripple and
defendant Garlinghouse for violation of § 25110.
4. Plaintiff Failed to Allege Misrepresentation Claims Against Defendants
under California Corporations Code §§ 25401, 25501, and 25504.1
a. Plaintiff Failed to Allege a California Corporations Code § 25501
Claim for Violation of § 25401
California Corporations Code § 25401 makes it “unlawful for any person to offer or
sell a security in this state, or to buy or offer to buy a security in this state, by means of
any written or oral communication that includes an untrue statement of a material fact or
omits to state a material fact necessary to make the statements made, in the light of the
circumstances under which the statements were made, not misleading.” Cal. Corp. §
25401. In relevant part, California Corporations Code § 25501 provides the following:
“Any person who violates Section 25401 shall be liable to the

person who purchases a security from him or sells a security to him . . . unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if he had exercised reasonable care would not have known) of the untruth or omission.” Cal. Corp. Code § 25501. Here, defendants argue that plaintiff failed to state a claim for violation of California
Corporations Code § 25401 on the following four grounds: (1) he failed to allege that he
purchased his XRP from defendants directly, in satisfaction of § 25501’s purported privity
requirement; (2) he failed to allege that defendants offered or sold XRP in California; (3)
he failed to allege that the misstatements complained of were directed at plaintiff; and (4)
he failed to allege any misstatement by defendants with the requisite specificity.
Because the court has already disposed of defendants first and second challenges
in its analysis above concerning the viability of plaintiff’s § 25503 claim, the court
analyzes only defendants’ third and fourth challenges.
i. California Corporations Code § 25401 Does Not Require
that a Defendant Direct Its Purported Misstatement to
Plaintiff to Be Actionable
In support of their position, defendants primarily rely upon SIC Metals, Inc. v.
Hyundai Steel Co., 2018 WL 6842958 (C.D. Cal. Nov. 14, 2018), which, they claim,
“rejected a Section 25401 claim where the plaintiffs ‘failed to allege any facts that indicate
[defendant] made a false or misleading statement to Plaintiffs when negotiating the
purchase of . . . stock’ from them.” Dkt. 75 at 18. The court in SIC Metals, Inc. offers no
reasoning in support of limiting actionable statements to those made expressly to a
plaintiff in his or her particular purchase of securities. 2018 WL 6842958 at *5.
In support of their position to the contrary, plaintiff primarily relies upon Mausner v.
Marketbyte LLC, 2013 WL 12073832, at *10 (S.D. Cal. Jan. 4, 2013), for the proposition
that “[t]o adequately plead that Defendants’ misrepresentations and omissions were
made ‘in connection with the purchase or sale of a security,’ Plaintiff must plead facts
demonstrating that the statements or omissions ‘coincided’ with the purchase or sale.”
Dkt. 74 at 27. This proposition is uncontroversial and does not address the critical issue

of whether the challenged statement must target plaintiff specifically.
In the absence of any controlling circuit authority, the court concludes that § 25401
does not require that a defendant direct the alleged misstatement to the complaining
plaintiff. The text of that section does not include any such requirement. Indeed, when
construing that section, the court in Apollo Capital read-in the phrase “in connection with
the purchase or sale of securities” without any citation or reason in support. 158 Cal.
App. at 249. Absent justification, the court refuses to further tighten the requirements to
state a claim under that section. As a result, plaintiff’s § 25501 and § 25504.1 claims
survive defendants’ third challenge.
ii. Plaintiff Failed to Adequately Allege an Actionable
Misstatement under Rule 9(b)
As a preliminary matter, plaintiff suggests that Rule 9(b) does not necessarily
apply to his claims for violation of § 25401 because they might sound in negligence (as
opposed to fraud). Dkt. 74 at 27. Plaintiff fails to develop that potential distinction. In any event, because Rule 9(b) applies to negligent misrepresentation claims,9 plaintiff’s
underdeveloped suggestion to the contrary is misplaced. As a result, the court applies
Rule 9(b) to plaintiff’s § 25501 and § 25504.1 claims for violation of § 25401.
Here, plaintiff failed to satisfy Rule 9(b)’s heightened pleading standards with
respect to defendants’ allegedly fraudulent misstatements. To satisfy such showing,
plaintiff relies upon the following sets of allegations. The court analyzes each below.
First – “Ripple claims that XRP has utility—like currency—in its use as a ‘bridge
currency’ for international payments. But, as discussed above, more than 60 percent of
XRP is owned by Ripple and none of that XRP is used for anything at all, other than to be
sold in the future to investors. Moreover, as for the XRP that was already sold or
otherwise distributed by Defendants, the vast majority of it is not used for bridging

9 Atl. Richfield Co. v. Ramirez, 176 F.3d 481 (9th Cir. 1999) (“The district court also properly dismissed [defendant counter-claimaint’s] first and second counterclaims, for fraud and negligent misrepresentation respectively, because they did not comply with Federal Rule of Civil Procedure 9(b)’s particularity requirement.”) (emphasis added).

international transactions, but for investment purpose. Accordingly, Defendants’ claim
that XRP has a utilitarian purpose is nothing but a red herring attempt to avoid the
application of securities laws.” Compl. ¶ 41.
Here, plaintiff fails to specify (1) who among defendants’ employees made the
statement, (2) when it was made, (3) where it was made, and (4) how it was
communicated. As a result, the misstatement alleged above fails Rule 9(b).
Second – “Similarly, on or about December 21, 2017, Ripple tweeted in Japanese
that XRP was now available on over 50 exchanges. That tweet linked to an article on
Ripple’s website which described XRP as ‘the fastest and most scalable [digital] asset on
the market.’ It continued, ‘[t]he market is taking notice of XRP’s speed, reliability and
scalability — which has strengthened the demand for XRP and where it’s listed. In fact,
we’re proud to announce that XRP has gone from being listed on six exchanges earlier
this year to more than 50 worldwide.’ The article also linked to a number of exchanges
where XRP could be purchased, and stated that ‘XRP’s long-term value is determined by
its utility—including its ability to help financial institutions source liquidity for payments
into and out of emerging markets.’” Id. ¶ 45.
Here, plaintiff fails to explain how or why the above statement is false. As a result,
the misstatement alleged above fails Rule 9(b).
Third – “Ripple’s CEO, Brad Garlinghouse, has also been a vocal advocate for
investing in XRP. In a December 14, 2017 interview with BNN, when asked if he is
personally invested in XRP, the CEO stated ‘I’m long XRP, I’m very, very long XRP as a
percentage of my personal balance sheet.’ He continued, stating that he is ‘not long on
some of the other [digital] assets, because it is not clear to me what’s the real utility, what
problem are they really solving.’ He ended by reiterating, ‘if you’re solving a real problem,
if it’s a scaled problem, then I think you have a huge opportunity to continue to grow that.
We have been really fortunate obviously, I remain very, very, very long XRP, there is
an expression in the industry HODL, instead of hold, it’s HODL . . . I’m on the HODL
side.’” (emphasis in the original). Id. ¶ 49.

Here, plaintiff fails to explain how or why the above statement is false. As a result,
the misstatement alleged above fails Rule 9(b).
Fourth – “52. On or about January 17, 2018, Garlinghouse tweeted a CNBC
article titled, “Ripple is sitting on close to $80 billion and could cash out hundreds of
millions per month – but it isn’t,” with the caption, “A good read on why fostering a healthy
$XRP ecosystem is a top priority at @Ripple.” . . . 53. However, the reality was that
Ripple was doing exactly the opposite of what CNBC reported. As laid out in Section
IV(B), Defendants issued and sold at least $167.7 million worth of XRP between January
1, 2018 and March 31, 2018.” Id. ¶¶ 52-53.
Here, plaintiff fails to explain how or why the alleged caption and accompanying
statements tweeted by defendant Garlinghouse are false. Plaintiff’s allegation that
“defendants issued and sold at least $167.7 million worth of XRP” during 2018 Q1 is not
necessarily inconsistent with (1) cashing-out hundreds of millions per month ($167
million quarterly divided by three months equals appx. $56 million per month) or (2)
fostering a healthy XRP ecosystem. Relatedly, paragraph 53’s cross-reference to
Section IV(B) does not alter that conclusion. Significantly, that section, at paragraph 36,
merely provides the figures for the $167.7 million in alleged sales during 2018 Q1.
Compl. ¶ 36. As a result, the misstatement alleged above fails Rule 9(b).
Fifth – “On April 26, 2017, Ripple tweeted a link to an article on its own site,
proclaiming: ‘#Ripple welcomes 10 additional customers to our #blockchain #payments
network.’ Neither this tweet nor the article it linked to informed readers that the blockchain
payments network did not refer to the XRP Ledger, but rather Ripple’s xCurrent
enterprise solution.” Id. ¶ 62.
Here, plaintiff fails to explain how or why defendants’ purported failure to specify
that the referenced network related to the enterprise solution creates an improper
impression that such solution is the same as XRP. Defendants raise this exact argument
in their motion, Dkt. 70 at 30, and plaintiff offers no response, Dkt. 74 at 27-28. As a
result, the misstatement alleged above fails Rule 9(b).

Sixth – Various statements (mostly tweets) by defendants on specified dates
concerning public interest in XRP (Compl. ¶ 63), advantages over Bitcoin (id. ¶ 64), the
growth and potential value of XRP (id. ¶¶ 65-66), the future use of XRP by American
Express, the Japan Bank Consortium, as well as other “banks and payment providers”
(id. ¶¶ 67, 68, 73), how XRP is more than “bank software” (id. ¶ 74), a partnership with
MoneyGram (id. ¶¶ 102-103), defendants’ intent to develop the infrastructure necessary
for banks to directly use XRP (id. ¶ 102), and how XRP’s value depends upon the XRP
Ledger’s use for cross-border payments as well as its adoption by enterprises (id. ¶ 149).
Again, plaintiff fails to explain how or why any of the misstatements alleged in the
above paragraphs are false. In their motion, defendants challenged the sufficiency of
various of these alleged misstatements. Dkt. 70 at 31. Plaintiff failed to respond to such
challenges. Dkt. 74 at 27-28. As a result, the misstatements alleged at paragraphs 63
68, 70, 73-74, 102-03, and 149 all fail Rule 9(b).
Seventh – “95. Defendants made numerous statements to the public falsely
claiming XRP is not a security to prop up demand and its value. . . . 96. For example, on
approximately April 11, 2018, Ripple’s Chief Market Strategist, Cory Johnson, told CNBC:
‘We absolutely are not a security. We don’t meet the standards for what a security is
based on the history of court law.’ Mr. Johnson also said, ‘Coinbase never ever raised the
issue of whether or not XRP is a security in our discussions about listing XRP. We’re 100
percent clear, it’s not a security. We don’t meet the standards.’ . . . 97. Ripple’s CEO
Garlinghouse made similar comments, claiming XRP is not a security, to the public
through a variety of avenues and media channels, including at the CB Insights Future of
Fintech, live-streamed by Yahoo Finance.” Id. ¶¶ 95-97.
Here, a statement that XRP does not qualify as a “security” is a position on a legal
question, not an actionable misstatement. Indeed, the rest of the statement alleged at
paragraph 96 (“We don’t meet the standards for what a security is based on the history of
court law”) further clarifies the basis for such stated opinion. The alleged misstatement
by defendant Garlinghouse at paragraph 97 separately fails Rule 9(b)’s what, when, why,

and how requirements. Significantly, such allegation also fails to specify the exact claims
made by defendant Garlinghouse concerning XRP’s status as a non-security. As a
result, the misstatements alleged at paragraph 96-97 fail Rule 9(b).
In addition to shortcomings detailed above, plaintiff also fails to identify the
respective involvement of each defendant in the alleged fraud. Compl. ¶ 198
(“Defendants, separately or together, had knowledge of the falsity or misleading nature
of a statement or omission made in connection with the offers or sales of XRP.
Alternatively, Defendants, separately or together, were negligent in failing to investigate
and discover the falsity of the statement or omission.”) (emphasis added). Such a failure
to differentiate which allegations of fraud apply to which defendants is separately
improper under Rule 9(b). Swartz, 476 F.3d at 764-65.
Lastly, to the extent plaintiff bases his § 25501 upon any purported misstatement
not analyzed above, Dkt. 74 at 27 (characterizing the seven sets of allegations analyzed
above as “examples” of the misstatements alleged), such claim fails Rule 9(b) because
plaintiff did not expressly identify such misstatements as the basis for this claim in his
complaint or opposition.
b. Plaintiff Failed to State a California Corporations Code § 25504.1
Claim Against Defendant Ripple Labs and Defendant
California Corporate Code § 25504.1 provides the following in relevant part:
“Any person who materially assists in any violation of Section 25110 . . . or 25401 . . . with intent to deceive or defraud, is jointly and severally liable with any other person liable under this chapter for such violation.” Cal. Corp. Code § 25504.1. Here, plaintiff has failed to allege a predicate violation of § 25401. Absent such
showing, plaintiff cannot allege joint and several liability under § 25504.1 against
defendant Ripple or defendant Garlinghouse. SIC Metals, Inc., 2018 WL 6842958, at *5
(“Plaintiffs nevertheless fail to sufficiently allege joint and several liability here. First . . .
Plaintiffs have failed to state an underlying violation of section 25401.”).

5. Plaintiff Failed to State Claims under California’s Consumer Protection
California Business & Professions Code § 17200 “prohibits business acts that are
(1) fraudulent, (2) unfair, or (3) unlawful.” Siegal v. Gamble, 2016 WL 1085787, at *7
(N.D. Cal. Mar. 21, 2016). California Business & Professions Code § 17500 makes it
“unlawful for any company or employee thereof to make or disseminate any statement
concerning real or personal property or professional services, which is known, or which
by the exercise of reasonable care should be known, to be untrue or misleading.” Castro
Valley Union 76, Inc. v. Vapor Sys. Techs., Inc., 2012 WL 5199458, at *9 (N.D. Cal. Oct.
22, 2012).
Here, defendants argue that plaintiff failed to state claims under § 17200 and §
17500 on the following three grounds: (1) California’s consumer protection statutes do
not apply to claims alleging securities-related violations; (2) those statutes include a
legislative safe harbor, which applies here given that plaintiff’s federal securities claims
are barred by Title 15 U.S.C. § 77m’s statute of repose; and (3) plaintiff failed to allege
statements or conduct in support of these claims with the requisite Rule 9(b) specificity.
Because the court has already found that the statute of repose does not bar plaintiff’s
federal securities claims, the court analyzes only defendants first and third challenges.
a. California Business and Professions Code § 17200 and § 17500
Do Not Apply to Securities-Related Violations
Defendants are correct that § 17200 and § 17500 do not extend to actions that
relate to securities transactions. In support of that position, defendants primarily rely
upon Bowen v. Ziasun Techs., Inc., 116 Cal. App. 4th 777 (2004), as modified on denial
of reh’g (Apr. 7, 2004).
In Bowen, the court ruled that “Section 17200 does not apply to securities
transactions.” Id. at 788. In support of its adoption of that rule, the Bowen court looked
to the reasoning proffered by the Ninth Circuit in Spinner Corp. v. Princeville Dev. Corp.,
849 F.2d 388 (9th Cir. 1988), Bowen, 116 Cal.App.4th at 788, which interpreted a Hawaii

consumer-protection statute similar to § 17200 not to extend to actions involving
securities, Spinner Corp., 849 F.2d at 392-93. The Bowen court found that the legislative
intent of § 17200 was no different than that of the Hawaii statute at issue in Spinner,
Bowen, 116 Cal. App. 4th at 788, and reasoned that, because California courts treat
federal court decisions interpreting federal counterpart statutes as extraordinarily
persuasive, and “the FTC has never applied the FTC Act to securities transactions,” §
17200 “should also not reach [securities] transactions,” id. at 788-89.
In response, plaintiff primarily relies upon, Inc. v. Gradient
Analytics, Inc., 151 Cal. App. 4th 688 (2007). While plaintiff is correct that the court in
Overstock limited Bowen, it expressly recognized the ongoing validity of Bowen’s ruling
that § 17200 does not extend to securities transactions. 151 Cal. App. 4th at 715
(“Whether one agrees with Bowen or not its holding that securities transactions are
not covered under the UCL bars lawsuits based on deceptive conduct in the sale
and purchase of securities, nothing more. Overstock’s claims do not arise from any
stock transactions between the parties. Rather, they arise from the allegedly defamatory
reports . . .”) (italics in the original) (bold italics added) (footnote omitted).
Various courts in this district have commented on the reasoning and reach of
Bowen’s rule,10 however, the only potential criticism of Bowen by the California Supreme
Court—itself contained in a footnote—states only that: “Whatever the scope and merits of
that holding may be . . . it does not apply here.” Rose v. Bank of America, 57 Cal. 4th
390, 399 n.8 (Cal. 2013). Whatever its merits, then, Bowen remains California law.
As a result, the court concludes that Bowen bars plaintiff’s § 17200 claim to the
extent plaintiff premises that claim on the theory that XRP is a security. Further, because

10 Siegal v. Gamble, 2016 WL 1085787, at *7-8 (N.D. Cal. Mar. 21, 2016) (citing In re Charles Schwab Corp. Secs. Litig., 257 F.R.D. 534 (N.D. Cal. 2009) and Strigliabotti v. Franklin Resources, Inc., 2005 WL 645529 (N.D. Cal. Mar. 7, 2005) in support of the proposition that courts have “narrowly limited” Bowen to securities transactions and “questioned the validity of its conclusion,” but ultimately acknowledging that “[t]he fact remains, however, that California courts, not a federal court interpreting California law, must decide whether to overturn Bowen’s holding. Until that day, Bowen endures.”).

plaintiff’s § 17500 is based on the same securities-related allegations supporting its §
17200 counterpart, the court concludes that Bowen likewise bars that claim.
b. Plaintiff’s Business and Professions Code § 17200 and § 17500
Claims Also Fail Rule 9(b)’s Heightened Pleading Requirements
Here, plaintiff does not dispute that Rule 9(b)’s heightened pleading standard
generally applies to § 17200 and § 17500 claims in federal court. Dkt. 74 at 32. In
plaintiff’s three-paragraph opposition to defendants’ challenge that his § 17200 and §
17500 claims fail Rule 9(b), plaintiff relies solely upon the same seven categories of
purported misstatements that he identified in support of his misrepresentation claims
under California Corporations Code § 25401 and § 25504. Dkt. 74 at 32. As decided
above, such alleged misstatements fail Rule 9(b)’s heightened pleading requirements. As a result, plaintiff’s § 17200 and § 17500 claims similarly fail those requirements.11
As previously stated, the court concludes that Bowen bars plaintiff’s § 17200 and §
17500 claims to the extent such claims depend upon XRP’s factual status as a security.
However, the statements that plaintiff’s § 17200 and § 17500 claims rely upon do not,
themselves, require a finding of such status to be actionably misleading. Identified in his
opposition brief, such statements instead reflect efforts at publicizing XRP’s usefulness
and scope of adoption, as well as defendants’ XRP sales activities. Dkt. 74 at 27-28
(bullets one through six). In the event XRP were factually determined not to be a
security (like any other non-security good subject to California consumer protection
statutes) and plaintiff alleged the above referenced misstatements with requisite Rule
9(b) specificity, those statements may still be actionable under § 17200 or § 17500 under,
for example, a theory of false advertising. As a result, the court allows plaintiff leave to

11 Although plaintiff argues that defendants’ alleged misstatements “are the crux of [his] FAL and UCL claims,” Dkt. 74 at 32, plaintiff also alleges that their “acts and practices” violated § 17200 by offending “established public policy,” Compl. ¶ 218. Plaintiff fails to allege the established public policy offended in both his complaint and opposition. As a result, to the extent plaintiff bases his § 17200 claim upon a theory of conduct distinct from the purported misrepresentations rejected on Rule 9(b) grounds above, the court concludes that such alternative theory does not salvage his § 17200 claim.

amend his § 17200 and § 17500 claims to satisfy Rule 9(b) but only both under the
alternative theory that XRP is not a security and with respect to the above referenced
misstatements identified in plaintiff’s opposition brief.


For the above reasons, the court grants in part and denies in part defendants’
motion to dismiss. The motion to dismiss the first and second causes of action for
violation of Title 15 U.S.C. § 77l(a)(1) and § 77o is DENIED. The motion to dismiss the
third and fifth causes of action for violation of California Corporations Code § 25503, §
25504, and § 25110 is DENIED. The motion to dismiss the fourth cause of action for
violation of California Corporations Code § 25501, § 25504.1, and § 25401 is GRANTED
with leave to amend. The motion to dismiss the sixth and seventh causes of action for
violations of California Business and Professions Code § 17200 and § 17500 is
GRANTED with prejudice, except as narrowly provided immediately above.
The court allows plaintiff 28 days from the date of this order to file an amended
consolidated complaint accounting for the deficiencies in the claims dismissed without
prejudice. In it, plaintiff must specifically set forth any alleged misrepresentation used to
support any amended claim. Failure to do so will result in dismissal of such claim with
prejudice. Plaintiff may not otherwise amend his complaint absent leave of court or
consent of defendants. Upon the filing of any amended complaint, plaintiff must also file
a redline clearly demarcating its changes from the existing complaint.
Dated: February 26, 2020
/s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON United States District Judge

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