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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 1 of 41
`
`Marc M. Seltzer (54534)
`mseltzer@susmangodfrey.com
`Steven G. Sklaver (237612)
`ssklaver@susmangodfrey.com
`Oleg Elkhunovich (269238)
`oelkhunovich@susmangodfrey.com
`Krysta Kauble Pachman (280951)
`kpachman@susmangodfrey.com
`Nicholas N. Spear (304281)
`nspear@susmangodfrey.com
`SUSMAN GODFREY L.L.P.
`1900 Avenue of the Stars, Suite 1400
`Los Angeles, CA 90067-6029
`Telephone: (310) 789-3100
`Facsimile: (310) 789-3150
`James Q. Taylor-Copeland (284743)
`james@taylorcopelandlaw.com
`TAYLOR-COPELAND LAW
`501 W. Broadway, Suite 800
`San Diego, CA 92101
`Telephone: (619) 400-4944
`Facsimile: (619) 566-4341
`Counsel for Lead Plaintiff Bradley Sostack
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`OAKLAND DIVISION
`
`In re RIPPLE LABS, INC. LITIGATION
`
`This Document Relates to:
`All Actions
`
`Case No. 4:18-cv-06753-PJH (RMI)
`Formerly Consolidated/Related
`Case No. 4:21-cv-06518 (Closed 9-27-21)
`CLASS ACTION
`NOTICE OF MOTION AND MOTION
`FOR CLASS CERTIFICATION;
`MEMORANDUM OF POINTS AND
`AUTHORITIES IN SUPPORT
`DATE: April 26, 2023
`TIME: 1:30 p.m.
` PLACE: 1301 Clay St., Oakland, CA 94612
` Courtroom 3
`JUDGE: Hon. Phyllis J. Hamilton
`Consolidated First Amended Complaint
`Filed: March 25, 2020
`
`FILED UNDER SEAL
`REDACTED
`
`NTC OF MTN AND MTN FOR CLASS CERTIFICATION
`4:18-cv-06753-PJH
`
`11104523v1/016433
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`

`

`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 2 of 41
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`NOTICE OF MOTION AND MOTION
`
`PLEASE TAKE NOTICE that on April 26, 2023 at 1:30 p.m., in the courtroom of the
`
`Honorable Phyllis J. Hamilton, United States District Judge, Northern District of California, located
`
`at 1301 Clay Street, Oakland, CA 94612, Courtroom 3, Lead Plaintiff Bradley Sostack will move
`
`the Court for certification of two classes pursuant to Rule 23 of the Federal Rules of Civil
`
`Procedure:
`
`• Federal Securities Claims Class: All persons or entities who purchased XRP from May
`
`3, 2017 through the present and who have (a) retained the XRP, and/or (b) sold the XRP
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`at a loss.
`
`• California State Securities Claims Class: All persons or entities who purchased XRP
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`from Defendants and/or from any person or entity selling XRP on Defendants’ behalf
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`from May 3, 2017 through the present and who have (a) retained the XRP, and/or (b)
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`sold the XRP at a loss.
`
`Excluded from both Classes are: Defendant Bradley Garlinghouse; corporate officers, members of
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`the boards of directors, and senior executives of Defendants Ripple Labs, Inc. and XRP II, LLC;
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`members of Defendants’ immediate families and their legal representatives, heirs, successors or
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`assigns; and any entity in which Defendants have or had a controlling interest.
`
`Lead Plaintiff also requests he be appointed by the Court as the class representative and that
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`Susman Godfrey L.L.P. and Taylor-Copeland Law be appointed as Class Counsel. The grounds
`
`for this motion are that this case meets all the requirements for class treatment as required under
`
`Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure.
`
`The Motion is based on this Notice of Motion and supporting Memorandum of Points and
`
`Authorities, the Declaration of Nicholas N. Spear and the exhibits attached thereto, the Declaration
`
`of Lead Plaintiff Bradley Sostack and the exhibit attached thereto, the reply briefing in further
`
`NTC OF MTN AND MTN FOR CLASS CERTIFICATION
`4:18-cv-06753-PJH
`
`11104523v1/016433
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`

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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 3 of 41
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`
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`support of this Motion, the arguments of counsel, and any such other matters as the Court may
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`consider.
`
`Dated: November 18, 2022
`
`
`
`
`
`
`
`
`
`
`
`
`SUSMAN GODFREY L.L.P.
`By /s/ Marc M. Seltzer
`
`
`Marc M. Seltzer (54534)
`Steven G. Sklaver (237612)
`Oleg Elkhunovich (269238)
`Krysta Kauble Pachman (280951)
`Nicholas N. Spear (304281)
`SUSMAN GODFREY L.L.P.
`1900 Avenue of the Stars, Suite 1400
`Los Angeles, CA 90067-6029
`Telephone: (310) 789-3100
`Facsimile: (310) 789-3150
`mseltzer@susmangodfrey.com
`ssklaver@susmangodfrey.com
`oelkhunovich@susmangodfrey.com
`kpachman@susmangodfrey.com
`nspear@susmangodfrey.com
`
`James Q. Taylor-Copeland (284743)
`TAYLOR-COPELAND LAW
`501 W. Broadway, Suite 800
`San Diego, CA 92101
`james@taylorcopelandlaw.com
`Telephone: (619) 400-4944
`Facsimile: (619) 566-4341
`
`Counsel for Lead Plaintiff Bradley Sostack
`
`
`NTC OF MTN AND MTN FOR CLASS CERTIFICATION
`4:18-cv-06753-PJH
`
`11104523v1/016433
`
`

`

`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 4 of 41
`
`
`
`TABLE OF CONTENTS
`
`I.
`II.
`III.
`
`INTRODUCTION ............................................................................................................... 1
`STATEMENT OF ISSSUES TO BE DECIDED ................................................................ 4
`BACKGROUND ................................................................................................................. 4
`A.
`All Proposed Class Members Purchased the Fungible Digital Asset XRP .............. 4
`B.
`Ripple’s
` Business Valuation are Tied to XRP .................................. 6
`C.
`Defendants Promoted XRP to the Public as an Investment ..................................... 7
`D.
`Defendants Do Not Register XRP Despite Billions in Transaction Value .............. 8
`LEGAL STANDARD .......................................................................................................... 9
`THE PROPOSED CLASSES SATISFY RULE 23(A) ..................................................... 10
`A.
`The Proposed Classes Are Sufficiently Numerous and Ascertainable .................. 10
`B.
`Common Issues of Fact and Law Exist .................................................................. 11
`C.
`Lead Plaintiff’s Claims Are Typical of the Class .................................................. 12
`D.
`Lead Plaintiff and His Counsel Will Adequately Represent the Class .................. 13
`THE PROPOSED CLASSES SATISFY RULE 23(B)(3) ................................................. 14
`A.
`Common Issues Predominate for the Federal Securities Class .............................. 14
`1.
`Common Questions of Law and Fact Predominate as to Whether
`XRP is an Unregistered Security................................................................ 15
`Investment of Money ...................................................................... 16
`a.
`Common Enterprise ....................................................................... 17
`b.
`Expectation of Profits Produced by the Efforts of Others.............. 19
`c.
`Common Questions of Law and Fact Predominate as to Whether
`Defendants Offered XRP to the Proposed Class. ....................................... 21
`Damages Can Be Proven with a Common Methodology. ......................... 24
`Common Issues of Law and Fact Predominate as to Control Person
`Liability for Defendants Ripple and Garlinghouse. ................................... 25
`Common Issues of Law and Fact Predominate for State Securities Class ............. 26
`B.
`A Class Action is the Superior Method of Adjudicating the Claims ..................... 29
`C.
`VII. DEFENDANTS DO NOT PROVIDE ANY BASIS TO DENY CERTIFICATION ....... 30
`VIII. CONCLUSION .................................................................................................................. 33
`
`IV.
`V.
`
`VI.
`
`2.
`
`3.
`4.
`
`
`
`i
`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`11104523v1/016433
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`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`A. B. v. Hawaii State Dep’t of Educ.,
`30 F.4th 828 (9th Cir. 2022).................................................................................................... 12
`
`Abdullah v. U.S. Sec. Assocs., Inc.,
`731 F.3d 952 (9th Cir. 2013) ..................................................................................................... 9
`
`Addison v. Monarch & Assocs., Inc.,
`2017 WL 10651455 (C.D. Cal. June 23, 2017) ...................................................................... 10
`
`Amchem Prod., Inc. v. Windsor,
`521 U.S. 591 (1997) ................................................................................................................ 14
`
`Apollo Capital Fund, LLC v. Roth Capital Partners, LLC,
`158 Cal. App. 4th 226, 253 (2007) ......................................................................................... 28
`
`Balestra v. ATBCOIN LLC,
`380 F. Supp. 3d 340 (S.D.N.Y. 2019) ......................................................................... 20, 21, 22
`
`Balestra v. Cloud With Me Ltd.,
`2020 WL 4370392 (W.D. Pa. July 2, 2020).................................................................. 2, 12, 29
`
`Briseno v. ConAgra Foods, Inc.,
`844 F.3d 1121 (9th Cir. 2017) ................................................................................................. 11
`
`Davidson v. Apple, Inc.,
`2018 WL 2325426 (N.D. Cal. May 8, 2018) .......................................................................... 32
`
`Davy v. Paragon Coin, Inc.,
`2020 WL 4460446 (N.D. Cal. June 24, 2020) ................................................................. passim
`
`Diamond Multimedia Sys., Inc. v. Superior Ct.,
`19 Cal. 4th 1036 (1999) .......................................................................................................... 27
`
`In re China Intelligent Lighting & Elecs., Inc. Sec. Litig.,
`2013 WL 5789237 (C.D. Cal. Oct. 25, 2013) ......................................................................... 25
`
`In re Hyundai & Kia Fuel Econ. Litig.,
`926 F.3d 539 (9th Cir. 2019) ................................................................................................... 13
`
`In re Lidoderm Antitrust Litig.,
`2017 WL 679367 (N.D. Cal. Feb. 21, 2017)........................................................................... 11
`
`In re Lyft Inc. Sec. Litig.,
`2021 WL 3711470 (N.D. Cal. Aug. 20, 2021) ............................................................ 10, 11, 29
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`18
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`
`In re Oppenheimer Rochester Funds Grp. Sec. Litig.,
`318 F.R.D. 435 (D. Colo. 2015) .............................................................................................. 25
`
`In re VeriSign, Inc. Sec. Litig.,
`2005 WL 7877645 (N.D. Cal. Jan. 13, 2005), as amended, 2005 WL 226154
`(N.D. Cal. Jan. 31, 2005) ........................................................................................................ 10
`
`Just Film, Inc. v. Buono,
`847 F.3d 1108 (9th Cir. 2017) ................................................................................................. 12
`
`Leyva v. Medline Indus. Inc.,
`716 F.3d 510 (9th Cir. 2013) ................................................................................................... 24
`
`Loc. Joint Exec. Bd. of Culinary/Bartender Tr. Fund v. Las Vegas Sands, Inc.,
`244 F.3d 1152 (9th Cir. 2001) ................................................................................................. 10
`
`Louisiana Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer,
`2011 WL 13152893, at *5 (N.D. Cal. Oct. 27, 2011) ............................................................. 28
`
`Miller v. Thane Int’l, Inc.,
`519 F.3d 879 (9th Cir. 2008) ................................................................................................... 14
`
`Morrison v. National Australia Bank Ltd.,
`561 U.S. 247 (2010) ................................................................................................................ 30
`
`Owen v. Elastos Found.,
`2021 WL 5868171 (S.D.N.Y. Dec. 9, 2021) .................................................................... 22, 24
`
`Parsons v. Ryan,
`754 F.3d 657 (9th Cir. 2014) ................................................................................................... 11
`
`People v. Black,
`214 Cal. Rptr. 3d 402 (Ct. App. 2017) .............................................................................. 26, 27
`
`Pinter v. Dahl,
`486 U.S. 622 (1988) ................................................................................................................ 21
`
`S.E.C. v. Goldman Sachs & Co.,
`790 F. Supp. 2d 147 (S.D.N.Y. 2011) ..................................................................................... 31
`
`S.E.C. v. R.G. Reynolds Enterprises, Inc.,
`952 F.2d 1125 (9th Cir. 1991) .......................................................................................... passim
`
`S.E.C. v. Ripple Labs, Inc., et al.,
`Case No. 1:20-cv-10832, Dkt. 4 (S.D.N.Y. Dec. 22, 2020)...................................................... 1
`
`S.E.C. v. W.J. Howey Co.,
`328 U.S. 293 (1946) ......................................................................................................... passim
`
`iii
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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 7 of 41
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`
`Sec. & Exch. Comm’n v. Blockvest, LLC,
`2019 WL 625163 (S.D. Cal. Feb. 14, 2019) ............................................................... 15, 17, 19
`
`Sec. & Exch. Comm’n v. LBRY, Inc.,
`2022 WL 16744741 (D.N.H. Nov. 7, 2022) ..................................................................... 19, 21
`
`Sec. & Exch. Comm’n v. NAC Found., LLC,
`512 F. Supp. 3d 988 (N.D. Cal. 2021) ............................................................................. passim
`
`Sec. & Exch. Comm’n v. Ripple Labs, Inc.,
`2022 WL 762966 (S.D.N.Y. Mar. 11, 2022) .......................................................................... 31
`
`Sec. & Exch. Comm’n v. Telegram Grp. Inc.,
`448 F. Supp. 3d 352 (S.D.N.Y. 2020) ..................................................................................... 18
`
`Tyson Foods, Inc. v. Bouaphakeo,
`577 U.S. 442 (2016) ................................................................................................................ 10
`
`U.S. Sec. & Exch. Comm’n v. Kik Interactive Inc.,
`492 F. Supp. 3d 169 (S.D.N.Y. 2020) ..................................................................................... 18
`
`Wade v. Indus. Funding Corp.,
`1993 WL 594019 (N.D. Cal. Dec. 14, 1993) .......................................................................... 10
`
`Warfield v. Alaniz,
`569 F.3d 1015 (9th Cir. 2009) .......................................................................................... passim
`
`Wildes v. BitConnect Int’l PLC,
`25 F.4th 1341 (11th Cir. 2022)...................................................................................... 3, 14, 22
`
`Williams v. KuCoin,
`2021 WL 5316013 (S.D.N.Y. Oct. 21, 2021) .................................................................. passim
`
`Statutes
`
`15 U.S.C. § 77 ......................................................................................................................... 15, 21
`
`15 U.S.C. § 77e ......................................................................................................................... 1, 15
`
`15 U.S.C. § 77l(a) .................................................................................................................. passim
`
`15 U.S.C. § 77o ....................................................................................................................... 15, 25
`
`Cal. Corporations Code § 25110 ......................................................................................... 1, 26, 27
`
`Cal. Corporations Code § 25503 ..................................................................................... 1, 3, 26, 29
`
`Cal. Corporations Code § 25504 ............................................................................................. 26, 29
`
`iv
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`
`
`Securities Exchange Act of 1934 § 10(b) ..................................................................................... 30
`
`Rules
`
`Fed. R. Civ. P. 23 ................................................................................................................... passim
`
`Fed. R. Civ. P. 23(b)(3) ................................................................................................................. 14
`
`Other Authorities
`
`Alexander Osipovich, TerraUSD Crash Led to Vanished Savings, Shattered
`Dreams (Wall St. Journal May 27, 2022), available at
`https://www.wsj.com/articles/terrausd-crash-led-to-vanished-savings-
`shattered-dreams-11653649201 (last accessed Nov. 18, 2022) ............................................ 4, 5
`
`Michael J. Kaufman, 26 Sec. Lit. Damages § 7:11 (2021) ........................................................... 24
`
`Michelle Zadikian, FTX crisis serves as warning to retail investors as major funds
`get burned (Yahoo! Finance Nov. 9, 2022), available at
`https://ca.finance.yahoo.com/news/ftx-crisis-serves-as-warning-to-retail-
`investors-as-major-funds-get-burned-184900788.html ............................................................ 4
`
`William B. Rubenstein, 7 Newberg and Rubenstein on Class Actions §§ 22:63,
`22:66, 22.82 (6th ed. 2022) ..................................................................................................... 10
`
`
`
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`MEMORANDUM OF POINTS AND AUTHORITIES
`
`I.
`
`INTRODUCTION
`
`This case meets the requirements for class certification pursuant to Federal Rules of Civil
`
`Procedure 23(a) and 23(b)(3). Defendants Ripple Labs, Inc. (“Ripple”), its wholly-owned
`
`subsidiary XRP II, LLC (“XRP II”), and its Chief Executive Officer Bradley Garlinghouse
`
`(“Garlinghouse”), offered or sold unregistered securities to members of the proposed classes in
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`violation of federal and state securities laws. Each proposed class member purchased units or
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`subunits of XRP, a fungible digital asset that is native to a blockchain called the XRP Ledger.
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`Defendants solicited the XRP purchases through a multimedia public marketing campaign that
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`promoted XRP as an investment that would appreciate due to Defendants’ stewardship over XRP
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`and related technology. Defendants engaged in this marketing campaign for the simple reason that
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`Ripple’s company value was tied almost exclusively to the value of its XRP holdings.
`
`
`
`
`
`. Defendants, however, never registered any of these transactions with federal or state
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`regulatory agencies, which violated Sections 5 and 12 of the Securities Act and Sections 25110 and
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`25503 of the California Corporations Code. More than two years after this litigation was initiated,
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`the United States Securities and Exchange Commission likewise filed an action against Defendants
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`that similarly alleges that Defendants offered or sold unregistered securities. See S.E.C. v. Ripple
`
`Labs, Inc., et al., Case No. 1:20-cv-10832, Dkt. 4 (S.D.N.Y. Dec. 22, 2020).
`
`Lead Plaintiff Bradley Sostack seeks certification of two classes under Federal Rule of Civil
`
`Procedure 23(b)(3): a Federal Securities Class for the Securities Act claims and a State Securities
`
`Class for the California law claims. Courts routinely certify Rule 23(b)(3) classes bringing similar
`
`unregistered securities claims arising out of digital asset purchases. See, e.g., Williams v. KuCoin,
`
`2021 WL 5316013, at *10–17 (S.D.N.Y. Oct. 21, 2021) (certifying a class of TOMO token
`1
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`purchasers alleging federal and state unregistered securities claims), report and recommendation
`
`adopted, 2022 WL 392404 (S.D.N.Y. Feb. 9, 2022); Balestra v. Cloud With Me Ltd., 2020 WL
`
`4370392, at *2–4 (W.D. Pa. July 2, 2020) (certifying class of Cloud Token purchasers alleging
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`federal unregistered securities claims), report and recommendation adopted, 2020 WL 4368153
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`(W.D. Pa. July 30, 2020); Davy v. Paragon Coin, Inc., 2020 WL 4460446, at *5–7 (N.D. Cal. June
`
`24, 2020) (certifying class of PRG token purchasers alleging federal unregistered securities claims).
`
`Defendants engaged in a uniform course of conduct with respect to selling unregistered
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`securities and liability will turn entirely on common evidence. The answer to the central question—
`
`whether XRP is an unregistered security—will be the same for all class members. Under the Howey
`
`test,1 courts perform an “objective” inquiry into whether a “contract, transaction, or scheme” was
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`“an investment of money in a common enterprise with an expectation of profits produced by the
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`efforts of others.” Warfield v. Alaniz, 569 F.3d 1015, 1020 (9th Cir. 2009) (numerals omitted).
`
`Common evidence—including social media posts, Ripple-produced marketing materials,
`
`deposition testimony of senior Ripple executives, and internal Ripple documents—shows that
`
`Defendants specifically promoted XRP as an investment opportunity to speculators. Defendants
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`did this by publicly linking their efforts to develop and invest in XRP and the XRP Ledger to
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`increases in XRP’s value. It was objectively reasonable to expect profits from Defendants’ efforts,
`
`as Defendants had significant control over XRP (as the largest holder) and the XRP Ledger
`
`blockchain (as the primary developer). And Defendants publicly made clear that their efforts were
`
`mutually beneficial; a 2019 XRP Market Report, for example, stated that Ripple was “aligned with
`
`other XRP stakeholders and focused on supporting a healthy XRP community.”2 This common
`
`
`1 S.E.C. v. W.J. Howey Co., 328 U.S. 293 (1946).
`2 See Ex. 57 at 10. All exhibits are attached to the Declaration of Nicholas N. Spear, filed
`concurrently herewith.
`2
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`evidence will establish that the XRP purchased by all class members was an unregistered security.
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`Whether Defendants solicited these purchases of unregistered securities is also a common
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`question that turns on common proof. This Court previously held that “any person who engaged
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`in the steps necessary to the distribution of the unregistered security is liable.” Dkt. 85 (MTD
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`Order) at 22 (internal quotation marks omitted). Common evidence will establish that Defendants
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`solicited all class members’ XRP purchases by “systematically market[ing] XRP and financially
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`benefit[ting] from such efforts.” Id. As discussed above, Defendants engaged in an extensive,
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`public marketing campaign across multiple media to encourage the purchase of XRP. See Wildes
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`v. BitConnect Int’l PLC, 25 F.4th 1341, 1346 (11th Cir. 2022) (“Broadly disseminated
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`communications . . . can convey a solicitation.”). This included detailed instructions on Ripple’s
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`website for how to purchase XRP. And Defendants benefited from each and every purchase of
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`XRP. Transactions in XRP increase demand, liquidity, and trading volume, which allows
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`Defendants to sell more XRP at a higher price.
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`Damages can also be calculated using a common methodology. As described in the
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`accompanying declaration of Dr. Steven P. Feinstein, a finance professor at Babson College and
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`president of Crowninshield Financial Research, damages under Section 12(a) of the Securities Act
`
`and Section 25503 of the California Corporations Code can be represented as arithmetic formulas
`
`that can be used to mechanically calculate damages for each member of the proposed classes.3 And
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`common evidence will establish that Defendants Ripple and Garlinghouse are jointly and severally
`
`liable as control persons for Ripple’s (Garlinghouse) and XRP II’s (Ripple and Garlinghouse)
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`conduct. XRP II is Ripple’s wholly-owned subsidiary, and Garlinghouse is the CEO of both
`
`entities.
`
`3 See Ex. 62.
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`11104523v1/016433
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`3
`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`

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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 12 of 41
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`The securities laws are designed to protect ordinary investors by requiring registration and
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`disclosures. These concerns are particularly acute in the burgeoning crypto markets. Indeed, retail
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`crypto investors have lost billions in value this year alone.4 Defendants’ marketing campaign for
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`XRP specifically promoted XRP as an investment opportunity that would appreciate due to
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`Defendants’ efforts. These were solicitations to buy a security. Defendants’ failure to register
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`these transactions is a classwide violation of the federal and states securities laws.
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`For these reasons, as discussed in more detail below, the Court should certify the proposed
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`classes under Rule 23(a) and Rule 23(b)(3).
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`II.
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`STATEMENT OF ISSSUES TO BE DECIDED
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`A. Whether the proposed Federal Securities Class should be certified under Federal Rule
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`of Civil Procedure 23(b)(3) because the Rule 23(a) factors are satisfied, common issues
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`predominate over individual issues, and a class action is the superior method of adjudication.
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`B. Whether the proposed State Securities Class should be certified under Rule 23(b)(3)
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`because the Rule 23(a) factors are satisfied, common issues predominate over individual issues,
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`and a class action is the superior method of adjudication.
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`III. BACKGROUND
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`A.
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`All Proposed Class Members Purchased the Fungible Digital Asset XRP
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`Lead Plaintiff, like every other member of the proposed class, purchased XRP. See
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`Declaration of Bradley Sostack (“Sostack Decl.”) ¶ 3. XRP is a digital asset
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`Ex. 1 (
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`) at RPLI_00623257, 69 (
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`.
`
`
`
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`4 See, e.g., Michelle Zadikian, FTX crisis serves as warning to retail investors as major funds get
`burned (Yahoo! Finance Nov. 9, 2022), available at https://ca.finance.yahoo.com/news/ftx-crisis-
`serves-as-warning-to-retail-investors-as-major-funds-get-burned-184900788.html (last accessed
`Nov. 18, 2022); Alexander Osipovich, TerraUSD Crash Led to Vanished Savings, Shattered
`Dreams (Wall St. Journal May 27, 2022), available at https://www.wsj.com/articles/terrausd-crash-
`led-to-vanished-savings-shattered-dreams-11653649201 (last accessed Nov. 18, 2022).
`4
`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`11104523v1/016433
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`

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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 13 of 41
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`
`
`); Ex. 28 (Schwartz Depo.) at 22:22–24 (
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`).
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`Units of XRP are divisible into one million subunits, which are called “drops.” Ex. 28 (Schwartz
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`Depo.) at 25:22–26:7, 323:15–22. Each unit and subunit of XRP is fungible with and has the same
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`value and currency conversation rates as all other units and subunits of XRP. Ex. 40 (Def. RFAs)
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`at RPLI_03566726, 41–42 (Resps. 24–25); Ex. 59 (CoinMarketCap XRP Analytics).
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`XRP is the native digital asset of the XRP Ledger. Ex. 37 (Schwartz Inv. Tr.) at 13:22–24.
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`The XRP Ledger is an Internet protocol that “
`
`
`
`.” Ex. 2 (
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`) at RPLI_00339374, 76; Ex. 28 (Schwartz Depo.) at
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`27:23–28:5. The XPR Ledger is structured as a blockchain, with each block containing information
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`about transactions conducted on the XRP Ledger. Ex. 28 (Schwartz Depo.) at 27:23–29:6. The
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`blocks are linked together using cryptographically secure references. Id. at 28:18–20. XRP is
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`referred to as “native” to the XRP Ledger because every transaction on the ledger requires a small
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`amount of XRP. Ex. 37 (Schwartz Inv. Tr.) at 18:12–19:24.5 The XRP Ledger was also
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`
`
`. See Ex. 1 (
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`) at RPLI_00623257, 69
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`(
`
`).
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` Ex. 28 (Schwartz Depo.) at 110:4–7 (
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`30 (Zagone Depo.) at 55:22–56:18 (
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`); Ex. 29 (Samarasinghe Depo.) at 84:10–13 (
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`).
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` 100 billion units of XRP. Ex. 3 (
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`RPLI_00339208. Ripple retained 80 billion XRP. Ex. 4 (
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`5
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`11104523v1/016433
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` Id.
`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`
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`); Ex.
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`
`
`
`
`) at
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`

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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 14 of 41
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`
`
`) at RPLI_00294765, 80. No more XRP have been, or likely will be, created. Ex. 37
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`(Schwartz Inv. Tr.) at 15:8–14.
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`. Ex. 28 (Schwartz Depo.) at 23:10–13, 143:5–7.
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`B.
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`Ripple’s
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` Business Valuation are Tied to XRP
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`Ripple is purportedly a software company, Ex. 31 (Birla Depo.) at 56:8–22,
`
`
`
`
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`, see, e.g., Ex. 32 (Will
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`Depo.) at 40:19–25, 42:2–5 (
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`); accord Ex. 27 (Garlinghouse Depo.) at 429:11–16 (
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`
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`Depo.) at 14:19–20, 40:15–17 (
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`); Ex. 8 at RPLI_01641423, 25 (
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`Ex. 9 (
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`) at RPLI_01931261, 62 (
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`); Ex. 7 (
`
`).
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`. See, e.g. Ex. 32 (Will
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`
`
`
`
`);
`
`
`
`) at
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`RPLI_00160553 (
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`). Ripple’s value
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`is driven almost entirely by its XRP holdings. See, e.g., Ex. 14 (
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`RPLI_00177952, 71 (
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`); Ex. 10 (
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`) at RPLI_00276363 (
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`) at
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`
`
`
`
`); Ex. 49 (6/26/17 Schwartz Reddit Post) (“For some time, Ripple
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`will be the largest holder of XRP and it will dominate over every other source of value Ripple
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`has.”).
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`11104523v1/016433
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`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 15 of 41
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`Ripple primarily sold XRP in two different ways. First, Ripple—through its wholly-owned
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`and controlled subsidiary XRP II, Ex. 11 (
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`43—
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`68:22–69:15 (
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`) at RPLI_00000041,
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`. Ex. 30 (Zagone Depo.) at
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`Recently, Ripple—also through XRP II—
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`. Ex. 27 (Garlinghouse Depo.) at 336:1–11; Ex. 12 (
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`) at RPLI_01030511, 19 (
`
`). Second,
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`29 (Samarasinghe Depo.) at 44:22–45:9.
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`).
`
`
`
`
`
`
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`. Ex.
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`
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` Id. at 45:11–
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`20. A Ripple market maker acted as
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` which means that it was
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` Ex. 35 (Gil Depo.) at 180:4–9, 281:19–282:1; accord
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`Ex. 33 (Madigan Depo.) at 213:13–15 (
`
`
`
`).
`
`C.
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`Defendants Promoted XRP to the Public as an Investment
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`Although XRP had no real-world utility for retail consumers, see, e.g., Ex. 56 (10/8/19
`
`Economic Club Garlinghouse Interview) at 8 (“XRP, in my judgment, and really any crypto, I don’t
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`think the use case is a consumer use case today.”), Defendants recognized that there was significant
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`interest in XRP as a speculative investment, see Ex. 47 (10/29/19 Fintech Beat Garlinghouse
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`Interview) at 23:02 (“You know, on XRP itself, and really I would say crypto broadly, I have
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`publicly said before, you know, 99.9 percent of all crypto trading is speculation today. The amount
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`of real utility you’re talking about is very, very low and I – that’s true within the XRP community,
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`as well.”). Defendants therefore targeted XRP speculators. See, e.g., Ex. 18 (
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`) at RPLI_00327099 (
`
`7
`MEMORANDUM OF POINTS AND AUTHORITIES
`4:18-cv-06753-PJH
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`11104523v1/016433
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`Case 4:18-cv-06753-PJH Document 181 Filed 11/18/22 Page 16 of 41
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`). As will be discussed in more detail below, Defendants