California court: Cryptos that are not securities may be subject to UDAAP laws

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on Mar 14, 2020
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  • A recent case against Ripple has seen an interesting and potentially damaging development, as the court ruled that UDAAP laws may apply to crypto projects that are not deemed securities.
  • The laws in question prohibit deceptive, abusive, or unfair practices or acts, and they may pave the way for further putative actions against crypto firms.
  • The application of UDAAP laws to cryptocurrency businesses seems to be a bigger problem — one that might affect numerous other projects and companies, apart from Ripple itself.

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A recent court ruling in a case involving cryptocurrency startup, Ripple, may end up leading to additional legal action potential against digital currencies. During the case, the California court argued that digital currencies that are confirmed not to be securities may be subject to other federal laws.

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The laws in question are the ones targeting deceptive, unfair, or abusive acts or practices, also known as UDAAP laws. The court stated this during a hearing on February 26th, and this viewpoint may lead to further action taken against other cryptocurrency projects, especially in the state of California.

However, the situation is more complicated than that due to the fact that the application of these laws is quite dynamic, and the definition of ‘unfair’ that would be universally agreed on has not yet been specified by the legal community within this context.

The case against Ripple takes a bad turn for the company

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The judge is also considering Ripple itself, deciding whether the company may have violated the state’s Unfair Competition Law, which forbids any kind of practices that may be described as unfair, unlawful, or fraudulent. Ripple attempted to dismiss the claims by claiming that there is no evidence that the tokens were purchased during the initiation distribution, and the plaintiff failed to demonstrate the truthfulness of the claim.

Despite this, the court ruled against the company, supporting the claim that Ripple did act as a seller in issuing its XRP token. But, the judge also did not support the plaintiff’s accusation of misrepresentation. The plaintiff then received 28 days to amend the complaint and refile it.

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