A federal judge's interpretation of the hazy definitions of securities and public offerings in the cryptocurrency world could determine whether an investor class action proceeds against financial tech company Ripple Labs.

On Wednesday, Chief District Judge Phyllis Hamilton of the Northern District of California heard Ripple Lab's case for dismissing a class action claiming the San Francisco company deceived investors of its XRP cryptocurrency. If the case proceeds, "it would not only threaten to eliminate XRP's utility as a currency, but it would upend and threaten to destroy" the market, which has seen $500 billion in trading in the last two years, according to the motion.

Lead plaintiff Bradley Sostack alleges he bought nearly 128,979 XRP in January 2018 for approximately $307,700 in bitcoin and USDT, a cryptocurrency issued by Tether. He sold his XRP for a loss of $118,100 the following week, according to the consolidated complaint filed in August. Sostack represents a class of XRP investors who allege Ripple Labs misled them into purchasing an unregistered security.

Ripple Labs' Boies Schiller Flexner and Debevoise & Plimpton attorneys argued the complaint exceeds the three-year deadline for filing a suit outlined in the Securities Act's statute of repose. Since the investors claim all XRP units were created in 2013 and brought to the general public before May 2015, Ripple contends the complaint is untimely.

Sostack's counsel from Susman Godfrey in Los Angeles and Taylor-Copeland Law in San Diego argued that Ripple Labs' attempt to invoke the statute of repose "is a twisted application" of the time limit that would undermine the law's purpose of protecting investors from fraud, according to the opposition to the motion to dismiss.

"There's always going to be tension between the remedial function of the law and the statute of repose," said Boies Schiller's Damien Marshall, of the firm's New York office, in response to the complaint. "That's the nature of repose, it is a limitation on continuing liability. That is the congressional intent."

Susman Godfrey's Oleg Elkhunovich said that, like many of the defendant's other arguments, the statute of repose raises issues that cannot be decided at the motion-to-dismiss stage. Elkhunovich, whose is based in Los Angeles, said the statute's application leads to a question of fact over whether Ripple Labs issued a genuine, bona fide public offering before 2017, and if it's had multiple offerings that would reset that start date of repose.

"An offering to the public is not enough. It has to be the type of bona fide public offering that would put the public on notice," he said.

Elkhunovich said the complaint did not point to any facts, nor did Ripple Labs make any arguments, about when the first public offering was made. Although, he did point to an error in the filing that said a $700,000 settlement Ripple Labs made in 2015 with the federal government for selling XRP without authorization acknowledged that the company did offer the currency to the "general public."

"You're suggesting that I rely on what you say instead of what you pled because it's inaccurate?" Hamilton asked. "Given how careful you're being about the characterization of sales to the public, it's the essence of your argument, why did you include that in your complaint?"

"In that respect, that's a mistake," he said.

Turning to Marshall, she asked if Ripple Labs was running with the argument that "the few times public offering is used in the complaint" is enough to show a public offering was made.

"It's plaintiffs' burden to show that repose doesn't apply in pleadings," he said. They have to be held to allegations in the complaint that there were public sales and billions in circulation by 2015, he said. "All those facts meet the definition of a genuine offer to the public," he said.

Besides the factual dispute over a public offering, plaintiffs argue that XRP is an unregistered security, while Ripple Labs has defined the virtual currency as a commodity, similar to bitcoin and Ethereum, in the past. Yet, when it comes to plaintiffs' claims under California's Unfair Competition Law and False Advertising Law, the company said those laws cannot be applied to securities transactions under the Bowen doctrine.

"Counsel admitted to classifying as a security for the purposes of this motion, only for purposes of this motion, they are not arguing XRP is not a security," Elkhunovich said. "Believe it, if this case proceeds that will be one of the key issues that will be hotly disputed."

Meanwhile, on Monday, the chairman of the Commodity Futures Trading Commission, Heath Tarbert, told news site Cheddar the status of XRP as a security or commodity is still unclear. "We've been working closely with the SEC over the last year or so to really think about which falls in what box, because I think if I hear anything from market participants, it's that we really need clarity," he said.