There’s lawyering up and then there’s this: Cybercurrency company Ripple Labs has brought on a high-profile team from Debevoise & Plimpton—former Securities and Exchange Commission chair Mary Jo White and her enforcement chief Andrew Ceresney—to defend against a securities fraud lawsuit.
The Debevoise attorneys and lawyers from two California offices of Skadden, Arps, Slate, Meagher & Flom appear on court papers for Ripple on June 1, removing the suit from California state court to federal court in the Northern District of California.
Investor Ryan Coffey, who claims he lost $551.89 trading Ripple’s XRP tokens or “Ripples,” sued the company last month alleging the cryptocurrency should have been registered as a security with the SEC. The complaint claims Ripple maintains a “centralized XRP” ledger, and has profited from increases in the cryptocurrency’s price at the expense of investors. The lawsuit, filed by solo San Diego securities lawyer James Taylor-Copeland, seeks to rescind more than $300 million in XRP purchases and establish a constructive trust over the proceeds of Ripple’s alleged sales of the cryptocurrency.
Ripple’s lawyers claim the suit should be handled in federal court rather than in San Francisco Superior Court, where the complaint was initially filed. Altough Ripple’s lawyers acknowledge that recent Supreme Court precedent in Cyan v. Beaver County Employees Retirement Fund does not permit removal of cases bringing only claims under the Securities Act of 1933, they claim that Cyan was decided in reference to the Securities Litigation Uniform Standards Act. Ripple’s lawyers argue that the federal court has jurisdiction under the Class Action Fairness Act, noting that Cyan didn’t address whether CAFA expressly permits removal of those claims. They also point out that the plaintiff has brought state law claims, which they claim are themselves removable, in addition to the Securities Act claim.
At the time the lawsuit was filed, a Ripple spokeswoman said whether XRP is a security was a question for the SEC to decide. “We continue to believe XRP should not be classified as a security,” she said in response to the complaint.
Ripple officials didn’t respond to a question about whether the lawyers at Skadden and Debevoise represent the company in any discussions with the SEC. A spokeswoman, however, said that the company is “ready to fight this opportunistic suit in the appropriate federal court.”
“We feel confident that the claims regarding XRP are completely unfounded both in law and fact,” she said.
The plaintiff’s lawyer, Taylor-Copeland, said that he wasn’t surprised by the caliber of defense lawyers he’s up against. “Whether or not their XRP token is a security is an existential threat to their entire business model,” Taylor-Copeland said. He also added that Ripple’s removal of the case to federal court was “entirely improper” given the Cyan case and Ninth Circuit precedent. He said he intends to ask for the case to be routed back to state court.