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COUNTYOFNEWYORK(COMMERCIAL

SUPREMECOURTOFTHESTATEOFNEWYORK

DIVISION)

R3HOLDCO

LLC,

-against-

Plaintiff,

RIPPLELABSINC.andXRP

II,LLC,

IndexNo.655781/2017

Defendants.Part3

(Bransten,J.)

OFDEFENDANTS

DEFENSESANDCOUNTERCLAIM

ANSWER,

AFFIRMATIVE

with

DefendantsRippleLabsInc.

("Ripple")

("Ripple"

andXRP

"Defendants"

Ripple,"Defendants"),

by

andthroughtheirundersigned

II,

LLC("XRP

attorneys,

II"

and,collectively

QuinnEmanuel

Urquhart&

Sullivan,LLP,

foritsAnswertotheComplaintofPlaintiffR3HoldCoLLC("R3

HoldCo")state,

uponknowledgeastothemselvesandtheirown

acts,

informationand

belief,

asbelow.Exceptasherein

allegationinthecomplaintis

expressly

denied.

specificallyadmitted,

andotherwiseupon

eachand

every

INTRODUCTION

1.Paragraph1ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsaverthatthetermsoftheOption

Contractspeakfor

themselves,

andrefertotheOptionContractforanaccurateandcomplete

statementofitsterms.DefendantsadmitthatwhentheOptionContractwasexecutedin

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of

September

2016,

XRP

generally

tradedatapricelessthan$0.0085perunit.Defendants

deny

the

remaining

allegationscontainedinparagraph1ofthecomplaint.

2.Defendantsadmitthatoverthelast

year,

thevalueofXRP

generally

Defendants

deny

the

remaining

allegationscontainedinparagraph2ofthecomplaint.

hasrisen.

41

3.Paragraph3ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsadmitthatonJune

12,2017,

Garlinghouse,

terminating

the

OptionContract

theCEOofRippleandManagerofXRP

II,

informedR3thatRipplewas

Technology

(together,

ProviderAgreementandXRPIIwas

"Agreements"

the"Agreements").

Defendants

deny

lawfullyterminating

the

remaining

allegations

containedinparagraph3ofthecomplaint.

PARTIES,

JURISDICTION,

ANDVENUE

Brad

lawfully

the

4.Defendantshaveinsufficientknowledgeandinformationtoformabeliefastothe

allegationscontainedinparagraph4ofthe

complaint,

andso

deny

thesame.

5.RippleadmitsthatRippleisacorporationorganizedand

existing

underthelaws

oftheStateofDelawareandisregisteredtotransactbusinessinNewYorkasaforeignbusiness

corporation.Ripplefurtheradmitsthatitprovidesglobalfinancialsoftwaresettlementsolutions

thatenablebankstotransact

directly,instantly

andwith

certainty

admitsthatishasanofficeinNew

York,

NY.Rippledeniesthe

inparagraph5ofthecomplaint.

ofsettlement.Ripplefurther

remaining

allegationscontained

6.XRPIIadmitsthatitisalimited

liabilitycompany

organizedand

existing

under

thelawsoftheStateofNew

York,

andthatitisa

wholly

owned

subsidiary

ofRipple.Ripple

admitsthatitswebsitestatesthatXRPIIis"Ripple'sregisteredandlicensed

money

business

(MSB)."

XRPIIadmitsthatitislicensedtoengageinVirtual

Currency

service

Business

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Activityby

theNewYorkStateDepartmentofFinancial

Services,

asthattermisdefined

by

the

StateofNewYork.Defendants

deny

the

remaining

allegationscontainedinparagraph6ofthe

complaint.

 

7.Paragraph7ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.

 

8.Paragraph8ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.

9.Paragraph9ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

Defendantshaveinsufficientknowledgeand

informationtoformabeliefastotheallegationscontainedinparagraph9ofthe

complaint,

so

deny

thesame.

FACTUALBACKGROUND1 FACTUAL

10.Defendants

deny

theallegationscontainedinparagraph10ofthecomplaint.

11.DefendantsadmitthatonoraboutSeptember

26,2016,

XRPIIandR3HoldCo

executedtheOptionContract.Defendantsfurtheradmitthatatrueandcorrect

copy

ofthe

and

OptionContractwasattachedtothecomplaintasExhibitA.Defendantsaverthatthetermsof

theOptionContractspeakfor

completestatementofits

paragraph11.

terms,

themselves,

refertotheOptionContractforanaccurateand

andotherwise

deny

the

remaining

allegationscontainedin

Defendantsdonotconsidertheheadingsinthecomplainttobeallegationstowhicha 1

complaint.

responseis

necessary;

totheextentaresponseis

necessary,

3 of 41

Defendants

deny

allheadingsinthe

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12.DefendantsadmitthatDavidRutterandChrisLarsenexecutedtheOption

Contract.Defendants

complaint.

deny

the

remaining

allegationscontainedinparagraph12ofthe

13.DefendantsaverthatthetermsoftheOptionContractspeakfor

themselves,

totheOptionContractforanaccurateandcompletestatementofits

terms,

andotherwise

the

remaining

allegationscontainedinparagraph13.

14.DefendantsaverthatthetermsoftheOptionContractspeakfor

themselves,

totheOptionContractforanaccurateandcompletestatementofits

terms,

andotherwise

the

remaining

allegationscontainedinparagraph14.

refer

deny

refer

deny

15.Paragraph15ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsaverthatthetermsoftheOption

Contractspeakfor

themselves,

refertotheOptionContractforanaccurateandcomplete

statementofits

terms,

andotherwise

deny

the

remaining

allegationscontainedinparagraph15.

16.DefendantsaverthatthetermsoftheOptionContractspeakfor

themselves,

refer

totheOptionContractforanaccurateandcompletestatementofits

the

remaining

allegationscontainedinparagraph16.

terms,

andotherwise

deny

17.Paragraph17ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsaverthatthetermsoftheOption

Contractspeakfor

themselves,

refertotheOptionContractforanaccurateandcomplete

statementofits

terms,

andotherwise

deny

the

remaining

allegationscontainedinparagraph17.

18.DefendantsadmitthatwhentheOptionContractwasexecutedinSeptember

2016,

XRP

generally

tradedatapricelessthan$0.0085perunit.Defendants

allegationscontainedinparagraph18ofthecomplaint.

4 of 41

deny

the

remaining

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19.Defendantsadmittheallegationscontainedinparagraph19ofthecomplaint.

20.DefendantsadmitthatthemarketvalueofXRP

generally

hasincreasedoverthe

lastyear.Defendants

deny

21.Defendants

the

deny

remaining

allegationscontainedinparagraph20ofthecomplaint.

theallegationscontainedinparagraph21ofthecomplaint.

22.Paragraph22ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsadmitthatBradGarlinghouse

informedDavidRutteronJune

Agreements.Defendants

complaint.

deny

12,

the

2017thatDefendantswere

lawfullyterminating

the

remaining

allegationscontainedinparagraph22ofthe

23.Paragraph23ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

Defendantsadmitthat

they

havenotdeclared

bankruptcy,

arenot

insolvent,

andhavenotreorganizedsincethepartiesexecutedtheOption

Contract.Defendants

complaint.

deny

the

remaining

allegationscontainedinparagraph23ofthe

24.Defendantshaveinsufficientknowledgeandinformationtoformabeliefastothe

allegationscontainedinparagraph24ofthe

complaint,

andso

deny

COUNT1

25.Defendantsrepeatandreiterateeachoftheir

forththerein.

foregoing

theseallegations.

responsesasif

fully

set

26.Paragraph26ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsaverthatthetermsoftheOption

Contractspeakfor

themselves,

refertotheOptionContractforanaccurateandcomplete

statementofits

terms,

andotherwise

deny

the

remaining

allegationscontainedinparagraph26.

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themselves,

refer

deny

themselves,

refer

deny

27.DefendantsaverthatthetermsoftheOptionContractspeakfor

terms,

totheOptionContractforanaccurateandcompletestatementofits

the

remaining

allegationscontainedinparagraph27.

andotherwise

28.DefendantsaverthatthetermsoftheOptionContractspeakfor

terms,

totheOptionContractforanaccurateandcompletestatementofits

andotherwise

the

remaining

allegationscontainedinparagraph28.

29.Paragraph29ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsadmitthatBradGarlinghouse

informedDavidRutteronJune

Agreements.Defendants

complaint.

deny

12,

the

2017thatDefendantswere

lawfullyterminating

the

remaining

allegationscontainedinparagraph29ofthe

30.Paragraph30ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

paragraph30ofthecomplaint.

Defendants

deny

theallegationscontainedin

31.Paragraph31ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.

COUNT2

32.Defendantsrepeatandreiterateeachoftheir

forththerein.

foregoing

responsesasif

fully

set

33.Paragraph33ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsaverthatthetermsoftheOption

Contractspeakfor

themselves,

refertotheOptionContractforanaccurateandcomplete

statementofits

terms,

andotherwise

deny

the

remaining

allegationscontainedinparagraph33.

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34.Defendantsadmittheallegationscontainedinparagraph34ofthecomplaint.

35.Paragraph35ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

DefendantsadmitthatonJune

12,2017,

Brad

GarlinghouseinformedDavidRutterthatDefendantswere

lawfullyterminating

theAgreements.

Defendants

deny

the

remaining

allegationscontainedinparagraph35ofthecomplaint.

36.Paragraph36ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

paragraph36ofthecomplaint.

Defendants

deny

theallegationscontainedin

37.Paragraph37ofthecomplaintstatesalegalconclusiontowhichnoresponseis

required.Totheextentaresponseis

required,

paragraph37ofthecomplaint.

Defendants

deny

AFFIRMATIVEDEFENSES

theallegationscontainedin

Defendantshaveinsufficientknowledgeorinformationuponwhichtoformabeliefasto

whetherthere

may

beadditionalaffirmativedefenses

available,

andthereforeDefendantsreserve

therighttoassertsuchadditionaldefensesbasedupon

subsequently

acquiredknowledgeor

informationthatbecomesavailablethrough

discovery

orotherwise.Without

assuming

the

burdenofproofon

any

matterswherethatburdenrestsonR3HoldCoas

plaintiff,

Defendants

assertthe

following

defenseswithrespecttothecomplaint:

FIRSTAFFIRMATIVEDEFENSE

The

complaint,

claimforwhichrelief

(FailuretoStatea

Claim)

andeachcauseofaction

purportedly

may

begranted.

alleged

therein,

failstostate

any

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SECONDAFFIRMATIVEDEFENSE

The

complaint,

(Plaintiff's

andeachcauseofaction

ofthefactthatR3HoldCoLLCandR3LLC

Breach)

purportedly

materially

alleged

therein,

isbarred

breachedtheAgreements.

THIRDAFFIRMATIVEDEFENSE

The

complaint,

doctrineofestoppel.

(Estoppel)

andeachcauseofaction

purportedly

alleged

therein,

isbarred

by

by

virtue

the

FOURTHAFFIRMATIVEDEFENSE

The

complaint,

(No

andeachcauseofaction

Damage)

purportedly

alleged

therein,

isbarredor

estopped,

inwholeorin

part,by

damagesfromthemattersalleged.

virtueofthefactthatR3HoldCohassufferedno

injury

FIFTHAFFIRMATIVEDEFENSE

(Unclean

Hands)

or

The

complaint,

andeachcauseofaction

purportedly

alleged

therein,

isbarred

by

the

doctrineofuncleanhandsand

by

theinequitableconductofR3HoldCoaswellasR3LLC.

SIXTHAFFIRMATIVEDEFENSE

The

complaint,

(BadFaithandImproper

andeachcauseofaction

purportedly

Purpose)

alleged

therein,

is

barred,

inwhole

orin

part,

becauseR3HoldCois

prosecuting

thislitigationinbadfaithandforanimproper

purpose,entitling

Defendantstoanawardofreasonableexpensesandattorney'sfees.

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SEVENTHAFFIRMATIVEDEFENSE

orin

alleged

The

complaint,

(Waiver)

andeachcauseofaction

purportedly

part,

becauseR3HoldCohaswaived

wrongdoing

ofwhichitcomplains.

any

rightit

may

alleged

therein,

is

barred,

inwhole

havetoinstituteanactionforthe

EIGHTHAFFIRMATIVEDEFENSE

The

complaint,

(Unjust

andeachcauseofaction

orin

part,

becauseR3HoldCowouldbe

fromDefendants.

unjustly

Enrichment)

purportedly

alleged

therein,

is

barred,

inwhole

enrichedifitwasallowedtorecoverdamages

NINTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Failureto

andeachcauseofaction

Mitigate)

purportedly

alleged

therein,

reasonofR3HoldCo'sfailuretomitigateitspurporteddamages.

is

barred,

TENTHAFFIRMATIVEDEFENSE

inwhole

orin

The

part,by

complaint,

(Fraudinthe

andeachcauseofaction

reasonoffraudinthe

inducement,

Inducement)

purportedly

asR3

HoldCo,

alleged

therein,

withR3

LLC,

is

barred,

inwhole

madefraudulent

statementswithknowledgeoftheir

falsity

topersuadeDefendantstoenterintothe

Agreements,

uponwhichDefendants

reasonably

reliedin

entering

wouldnothaveenteredif

they

hadknownaboutthe

intosuch

contracts,

intowhichDefendants

falsity

ofthefraudulentstatements.

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ELEVENTHAFFIRMATIVEDEFENSE

The

complaint,

(Other

PendingAction)

andeachcauseofaction

purportedly

alleged

therein,

isbarred

by

ofthefactthatthereisanother

pending

action

involving

thesamepartiesandclaimsin

California.

virtue

TWELFTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Statuteof

Frauds)

andeachcauseofaction

purportedly

theStatuteofFrauds.

alleged

therein,

is

barred,

inwhole

THIRTEENTHAFFIRMATIVEDEFENSE

The

complaint,

(Fraudulent

andeachcauseofaction

Concealment)

purportedly

alleged

therein,

is

barred,

inwhole

orin

part,by

reasonoffraudulent

concealment,

informationwithknowledgeoftheir

falsity

asR3

HoldCo,

withR3

LLC,

concealedmaterial

topersuadeDefendantstoenterintothe

Agreements,

uponwhichDefendants

reasonably

reliedin

entering

wouldnothaveenteredif

they

hadknownaboutthe

intosuch

contracts,

intowhichDefendants

falsity

ofthefraudulentstatements.

FOURTEENTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Forumnon

andeachcauseofaction

forumnonconveniens.

conveniens)

purportedly

alleged

therein,

is

barred,

inwhole

FIFTEENTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Limitationof

Liability

and

andeachcauseofaction

purportedly

Damages)

alleged

therein,

is

thelimitationson

liability

anddamagessetforthintheAgreements.

I

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barred,

inwhole

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SIXTEENTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Wantof

andeachcauseofaction

Consideration)

purportedly

alleged

therein,

is

reasonofthewantofconsiderationtosupporttheOptionContract.

barred,

inwhole

SEVENTEENTHAFFIRMATIVEDEFENSE

orin

The

part,by

complaint,

(Failureof

andeachcauseofaction

Consideration)

purportedly

alleged

therein,

is

barred,

reasonofthefailureofconsiderationtosupporttheOptionContract.

inwhole

EIGHTEENTHAFFIRMATIVEDEFENSE

The

complaint,

(Repudiation)

andeachcauseofaction

purportedly

alleged

therein,

isbarred

by

virtue

ofthefactthatR3HoldCoandR3LLCrepudiatedtheAgreements.

NINETEENTHAFFIRMATIVEDEFENSE

The

complaint,

(Abandonment/Abrogation)

andeachcauseofaction

purportedly

alleged

therein,

isbarred

by

virtue

ofthefactthatR3HoldCoandR3LLCabandonedand/orabrogatedtheAgreements.

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COUNTERCLAIMSAGAINSTR3HOLDCOANDR3LLC

Defendants/CounterclaimPlaintiffsRippleLabsInc.andXRP

II,

LLC

(collectively

"Counterclaim

Plaintiffs"),by

Plaintiffs"

andthroughtheirundersigned

attorneys,

QuinnEmanuelUrquhart

&Sullivan

LLP,

fortheirCounterclaimsagainstPlaintiff/Counterclaim

Defendant,

R3HoldCo

andCounterclaimDefendantR3LLC

follows:

(collectively

withR3

HoldCo,"R3"),hereby

stateas

NATUREOFTHEACTION

1.ThisisacaseaboutR3's

misrepresentations,omissions,half-truths,

andfailureto

live

up

toitspromises.

Byhiding

and

XRPIItodobusinesswithR3.Asa

shading

result,

the

truth,

R3's

key

RipplesharedwithR3

executivesinducedRippleand

sensitive,proprietary,

confidential,

andtradesecretinformationaboutRipple'scross-borderpaymentsolutionsundera

non-disclosureagreementtowhichRipplebelievedR3wouldadhere.Aspartoftheplanto

operationalizeacommercial

partnership,

aplanagreedto

by

the

key

executivesofR3and

Ripple,

XRPIIgrantedanoptiontoR3forfivebillionunitsofdigitalassetXRP.Rippleand

XRPIIwouldnothavedonethesethingshadR3'sexecutivestoldthemthetruth.Afterso

inducing

RippleandXRP

II,

R3breachedseparateanddistinctpromisesitmadetoRippleand

XRPII.R3further

publiclyrevealed,

justovertwomonths

ago,

thatithadbeen

building

a

competitivecross-borderpaymentsproductatthe

very

timethatR3was

extracting

fromRipple

proprietaryinformation,

protectedunderanon-disclosure

agreement,

aboutitscross-border

paymentsproduct.Thisactionseeksredressforthesewrongs.

2.Rippleisafinancial

technologycompany

softwareforfinancialtransactionswithavisiontoconnect

I

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thathasdevelopedstate-of-the-art

banks,

payment

providers,

digital

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assetexchangesandcorporatestoprovideafrictionlessexperiencetosend

state-of-the-art

technology

isbuiltondistributedledger

concepts.2 concepts.

money

globally.This

3.Ripplealsoholds

XRP,

auniquedigitalassetthatsolvesthecurrentfriction

experiencedwithglobalpayments.XRPisavalued

cryptocurrency

includeBitcoinandEthereum).XRPIIisRipple'swholly-owned

(othercryptocurrencies

subsidiary

thatmanages

certaintransactions

involving

XRP.

4.Ripple'ssuccessisdriveninpart

by

theadoptionofitsstate-of-theartsoftware

by

internationalbanksandfinancialinstitutionsandtheuseofXRP

by

thosefinancialinstitutionsto

movevalueworldwide.Ripplehasexpendedsignificanttimeandefforttoexposethese

financial

institutions,includingbanks,

centralbanksandregulators

worldwide,

tothe

technology

andtheuniquepropertiesof

XRP,

todemonstratehowthesetechnologiescanfacilitateseamless

internationalfinancialtransactionsin

revolutionary

ways.

5.Inthefallof

2014,

RippleandR3wereintroduced

by

mutualcontacts

and,

at

R3's

request,

began

meeting

togethertodiscusssharedinterestsandpossiblecommercial

synergies.Atthatpointin

time,

R3representeditselftobeaneutral

blockchainanddistributedledgertechnologies(suchas

Ripple's)

laboratory

onbehalfof

interestedin

adopting

suchtechnologies.

6.Inthetwoyearsbetweenthefallof2014andthefallof

2016,

for

testing

banking

clients

whentheparties

signedtheir

contracts,

R3metwithRippleonscoresofoccasionstodiscussacommercial

partnership

and

email,

betweenR3andRipple.

R3

represented-specifically

During

these

discussions,including

discussions

by

throughDavid

Rutter,

theCEOofR3LLCand

PresidentofR3

HoldCo,

andthroughco-founderToddMcDonald-thatR3could

help

phone

Ripple

succeedinthecross-borderpaymentanddigitalassetspace

bypromoting

Ripple's

technology

Distributedledger 2

technology

isameansof

supporting

asingleledgerwhere

accurate.

committedtoadistributedledger

transactionsarevalidatedinadistributedfashion

using

cryptographicsoftware.Atransactionis

only

whenmorethanonevalidatordeterminesthatitis

I

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andXRPtoalarge

group

ofbanksacrosstheworldtowhichR3haduniqueaccess.

Specifically,

R3helditselfouttoRippleas

having

accesstoa

leading

consortiumofbanksand

as

having

thetimeandinterestto

socialize,

testandmarketdistributedledgertechnologiesto

thesebanks.R3representedthatithadtheresourcesand

capability

topromoteRipple's

technology

andXRPtothesebanksandtomakeRippleamarketleader.R3alsomadeclearthat

aspartofadealwithRippleitwantedanoptiontopurchaseXRP.

7.As

early

asNovember

2015,

substantialbankconsortiumfrom9to30

R3was

grabbing

headlinesfor

quicklygrowing

banks,stating

thatthese

big

bankshave"allcalled

InDecemberof

2015,

R3representedthatitsconsortiumhadgrownto42banks.Andin

February,

R3'sMr.Rutterreachedoutto

Ripple,representing

thatR3couldusethese

connectionsto

help"build[]

abroader

community"

aroundRipple's

technology

andXRP.

R3continuedtorepeatrepresentationstoRippleaboutthestrengthofits

consortium,

for

example

members."

stating

inAugust2016thatR3'sconsortiumwas"a

growinggroup

withso

many

its

us."

Later,

8.R3'sRutterrepresentedinemailstoandconversationswithChris

Larsen,

the

CEOofRipple

during

the2014through2016time

period,

thatR3would"useourfinancial

marketsexpertiseandrelationshipsto

help

driveadoptionofRippleinamannerthat's

[sic]

impactfulforyouandyour

team."

Mr.Rutterdeclaredthatthe

many

powerfulbanksinits

consortiumwerepartofR3's

labhadthe

ability

to

"build[]

laboratory

abroader

for

testing

community"

technologiessuchasRipple'sandthatR3's

aroundRipple's

technology

andthedigital

assetXRP.Mr.RutterlaterreiteratedtoMr.Larsenthat"weare

really

excitedtoworkwithyou

guys

Iwouldliketobe

very

commercializationofa

product."

clearwiththebanksthat

theendgameIS

Fullyacknowledging

thatRipple'sgoalwastobecomea

leaderincross-borderpaymentsandthedigitalasset

space,

Mr.RutterpromisedMr.Larsenthat

R3'snetworkandexpertisewouldincreasetheusageand

unique

value,

justasR3haddonefor

Ethereum,

another

utility

ofXRP

cryptocurrency

byshowcasing

onthemarket.

its

I

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9.Asisthecasewithsomepotentialcommercial

partnerships,

Page15

of

41

Ripplehadquestions

aboutwhetherR3hadplanstocompetewithRipple'scross-borderpaymentsproduct.ButR3's

highest-levelspokespeople-itsCEOandPresidentaswellasits

co-founder-repeatedly

assuredRipplethatR3hadnosuchplanstocompetewithRippleoncross-borderpayments

technology.For

example,

Mr.RutterhostedMr.LarsenforanOctober

19,

2015dinnernearMr.

Rutter'slargehomeinNewYork.Atthat

dinner,

Mr.RuttertoldMr.LarsenthatR3hadno

interestin

entering

orplanstoenterthecross-borderpaymentsmarket.

Instead,

Mr.Rutterstated

thatR3wantedtouseits

banking

contactsto

help

sellRipple'spaymenttechnology.Mr.Rutter

andR3co-founderToddMcDonaldreiteratedthatR3hadnoplansorintentiontocompetewith

Rippleinthecross-borderpaymentservicesmarketthroughoutthe

Agreementsinthefallof2016.Theseconfirmationsfromthe

top

run-up

tothe

parties

parties'

ofR3'scommandchaingave

RipplecomfortthatR3wasnot

activelydeveloping

itsowncross-borderpaymentsproductatthe

sametimeR3was

courting

Ripple.

10.BasedonR3's

representations,

onAugust

16,2016,

RippleandR3executeda

Technology

ProviderAgreement(the

"TPA")whereby

thepartiesmemorializedthescopeofa

potentialcommercialpartnership.Aspartofthat

agreement,

andasadditionalconsideration

basedonR3'srepresentationsastoitsowncapabilitiesandcompetitive

executedanOptionAgreement

shortly

thereafter(the

"Option,"

collectively

plans,

XRPIIalso

the

"Agreements")

"Agreements"

withR3.TheOptiongrantedR3therighttopurchase

up

tofivebillionXRPatacertainprice.

11.ButunbeknownsttoRippleandXRP

II,

R3wasnotwell-positionedtoprovide

Ripplewith

any

resourcesorhelp.

Rather,

R3hadmisrepresenteditsresourcesandcurrent

ability

toperform

solely

toinduceRippleinto

executing

theAgreements.For

R3representedtoRipplethatitwouldhaveaccesstoitslargeconsortiumof

example,

although

leadingbanks,

R3

knewandhadreasontoknowthatseveral

key

banksthatwouldbeinstrumentaltoRipple's

successwouldsoonbe

departing

fromitsconsortium.

Similarly,

althoughR3representedto

Ripplethatitwoulduseits"financialmarketsexpertiseandrelationshipsto

help

driveadoption

I

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of

Ripple,"

fundraising

R3knewandhadreasontoknowitwouldbetoo

to

help

Ripplein

any

respect.

busywith,

andfocused

Page16

of

41

on,

itsown

12.AndwhileR3representedthatcommercializationofRipple'sproductwasR3's

"end

game,"

andthatR3hadnoplansorintentionsto

directly

competewithRippleona

borderpayments

product,

theserepresentationstoowerefalse.R3's"end

game"

apparently

cross-

was

tounveilaproductthat

directly

competedwithRipple'scross-borderpaymentstechnology.On

October

31,2017,

R3announcedthereleaseofitsowncross-borderpayment

technology,

disclosedtothepressthatR3hadstartedto

very

timeithadbeen

courting

and

securing

Becausethisinformationwasnototherwise

develop

theproductatthe

beginningof2016,

valuableinformationandrightsfromRipple.

available,

was

contrary

towhatR3's

leadership

and

atthe

had

professed,

andwas

expressly

concealedfromRippleandXRP

II,

RippleandXRPIIdidnot

discoverR3'ssecretplan.

13.HadR3beentruthfulwithRippleandXRPIIaboutthese

matters,

Rippleand

XRPIIneverwouldhaveenteredintothe

Agreements,

orgivenR3accesstoRipple's

sensitive,

confidential,proprietary,

andtradesecretinformationinthemonths

the

signing

oftheAgreements.

leadingup

toand

following

14.ApartfromR3'smisstatementsand

omissions,

R3breachedseparateanddistinct

promisesitmadetoRippleandXRPIIundertheAgreements.Underthe

TPA,

andas

considerationforthe

Option,

R3promisedtoworkingoodfaithtonegotiateandexecutea

commercial

partnership

withRipple.Butafter

securing

asapotentialpartner.Soonafter

signing

the

Agreements,

Garlinghouse,

BUTIam

thenRipple'sChief

OperatingOfficer,

personallybeing

crushed

by

a

ridiculously

the

Option,

R3

effectively

disappeared

Mr.RutterwrotetoBrad

"[1]ovetoseeyouwinthepaymentsspace

complicated

funding

round[.]"

Mr.

RutteradmittedtoMr.Garlinghousemonthslaterthathehad"noideawhat's

XRP,"

andMr.RutterandotherR3personneladmittedthatR3hadnotlived

going

onwith

up

toitssideofthe

I

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41

bargainintheTPA.R3personnelevendisparagedtheuseofXRPtopotentialRipplecustomers

inDecember2016.

half-truths,

15.GivenR3'sfraudulent

misrepresentations,

concealmentofmaterial

facts,

and

anditssubsequentfailuretoperformitsseparatepromisestoRippleandXRPII

underthe

Agreements,

RippleandXRPIInow

misconduct.

inJune

bring

2017,

RippleandXRPII

lawfully

terminatedtheAgreements.

thesecounterclaimstoaddresstheharmcaused

by

R3's

PARTIES

16.RippleisaDelawarecorporationheadquarteredat315

Francisco,

California.

Montgomery

StreetinSan

17.XRPIIisalimited

liabilitycompany

organizedand

existing

underthelawsofthe

stateofNewYorkandheadquarteredat315

Montgomery

XRPIIisRipple'swholly-ownedsubsidiary.

StreetinSan

Francisco,

California.

18.R3LLCandR3HoldCoarebothlimited

liability

companiesorganizedand

existing

underthelawsoftheStateofDelaware.R3LLCandR3HoldCoLLCsharea

corporateheadquartersat1370

Broadway,

Suite

1050,

New

York,

NY10018.TheR3corporate

group

alsomaintainsofficesinLondonandSingapore.Oninformationand

belief,

DavidRutter

isandalwayshasbeentheChiefExecutiveOfficerofR3LLCaswellasthePresidentofR3

HoldCo.

19.RippleandXRPIIareunawareofthetruenamesand

capacities,

whether

individual,corporate,associate,

or

otherwise,

ofCounterclaimDefendantsDoes1through

10,

inclusive,

or

any

of

them,

andthereforesuestheseCounterclaim

Defendants,

andeachof

them,

by

suchfictitiousnames.RippleandXRPIIwillamendthisCounterclaimwhentheidentitiesof

theseCounterclaimDefendantsareascertained.

I

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Page18

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41

FACTUALALLEGATIONS

A.TheRipple

Technology

andXRPDigitalAsset

20.As

technology

continuestoflattenthe

world,

businesses

increasingly

engagein

transactionsacrossinternationalborders.Consumersandbusinessesexpect

quick,seamless,

demand

delivery

ofservicesandinformation.

21.Beforetheriseofthe

Internet,

banksdevelopedsystemsfor

forinternationaltransactions.Butthesesystemsare

cumbersome,inefficient,

facilitating

payments

andcancreate

on-

security

concerns.

22.Rippleisafinancial

technologycompany

thathassupportedthedevelopmentof

state-of-the-art

state-of-the-art

Ripple

Technology

technology

Technology"

tofacilitatefinancialtransactions(the"RippleTechnology").

enablesfinancialinstitutionstoconnectwithoneanother

directly

to

The

reliably

and

efficiently

communicateinformation

about,

and

settle,

cross-borderpayments.This

technology

hasneverexistedbefore.Anditensuresthepaymentspeedand

certaintynecessary

toservicehighvolumesofallsizesandtypesof

payments,

while

making

them

fast,

cost-

effectiveandtransparentforbanksandfinancialinstitutions.

23.Rippleworkswithbanksandfinancialinstitutionstominimize

transactionfeesandtotransformhowtosend

money

aroundtheworld

-

a

unnecessary

necessarystep

to

competeintoday's

growing

economy.

ledger,

24.Ripplealsosupportsthedevelopmentofanopensource

technology

distributed

theXRP

Ledger,

towhichthedigitalassetXRPisnative.Financialinstitutionsthatuse

theRipple

butcanif

Technology,

whichincludeproductsxCurrentand

xVia,

arenotrequiredtouse

they

choose.In

particular,they

canuseXRPtoexpandreachintonew

markets,

foreignexchange

costs,

andprovidefasterpayments.

XRP,

lower

B.R3'sRepresentationstoGrowRippleIntoaMarketLeader

Understanding 25.

thatRipple'ssuccessisdriveninsubstantialpart

byhaving

internationalbanksandfinancialinstitutionsadopttheRipple

Technology

andembrace

XRP,

in

October

2014,

R3reachedouttoRippletodiscussthewaysinwhichitcould

help

makeRipplea

I

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marketleader.Fromthatpoint

signing

eitherofthe

Agreements,

on,

Page19

of

betweenOctober2014andAugust

2016,

priortotheparties

R3made

many

representationstoRippleastoR3's

capacity

41

to

provideRipplewithservicesandresourcestoensurethatRipplewouldbecomethatmarket

leaderinthecross-borderpaymentanddigitalasset

space,

asR3hadpromised.These

representationsoccurredoverthecourseofoveradozenin-person

callsandemails.

meetings,

and

many

phone

26.

Many

ofR3'srepresentationsweremade

thePresidentofR3HoldCo.OthersatR3

additionally

by

made

Mr.

Rutter,

theCEOofR3LLCand

representations,including

Todd

McDonaldandClemensWan.Mr.Rutterandtheseotherindividualsheldthemselvesoutas

agentsofallcompanieswithintheR3corporate

family,

withoutdistinctionbetweenparticular

entities.Mr.Rutterandtheseotherindividualsactedasthough

they

hadthepowertospeakon

behalfofandbindallcompanieswithintheR3corporate

family,

withoutdistinctionbetweenthe

particularentities.RippleandXRPII

reasonably

understoodallsuchindividualstobe

acting

on

behalfofallcompanieswithintheR3corporate

family

LLCandR3HoldCo.Theseotherindividualswere

withwhichRipple

worked,including

R3

intimately

involvedwiththenegotiationsof

theAgreementsandwereexpected

to,

andinfactwereinvolved

in,

R3'sperformanceorlackof

performanceundertheAgreements.Whichoftheseindividualswereemployed

by

which

corporateentitiesatwhichpointsintimeisandalwayshasbeen

peculiarly

withintheknowledge

ofR3.

Moreover,

oninformationand

belief,

eachofthenamedcompanieswere

directly

involvedinthe

everyday

businessofeachotherandwere

acting

inconcertwithandconspired

witheachother.

27.

Furthermore,

Mr.RutterorothersatR3intendedthatRipple

convey

their

statementstoXRPIIinordertoachieveR3's

clearly

statedintentiontosecuretheOptionfrom

XRPII.XRPIIreceivedandreliedontheserepresentationstoitsdetrimentin

deciding

toenter

intotheOption.

I

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41

28.ThepartiesfirstmetwhenMr.RutterandR3co-foundersToddMcDonaldand

JesseEdwardscametoRipple'sandXRPII'sheadquartersonOctober

30,

2014.Atthat

meeting,

Mr.RutterrepresentedtoRipple'sMr.LarsenthatR3had

deep

connectionswiththe

mostpowerfulbanksinthefinancial

industry,

andthatifRipplewantedaccesstothose

connections,

"locked

up."

itwouldbecriticalforRippletopartnerwithR3asR3

already

hadthebanks

Thepartieshadvariousdiscussionsthereafteraboutpossibilitiesfor

working

together.

29.OnSeptember

includingJPMorgan,

fordistributedledger

Goldman

technologies,

15,2015,

Sachs,

R3announcedthat"nineoftheworld's

leading

banks,"

and

others,

hadformedanR3consortiumtopursueuses

suchasRipple's.Days

later,

onSeptember

29,2015,

R3

announcedthat13morebankshad

30.OnOctober

19,2015,

joined,including

Morgan

Stanley,among

others.

Mr.RutterinvitedMr.LarsentohishomeinNewYorkand

toasteakhouse

nearby

fordinner.

There,

Mr.RutterlaidoutforMr.LarsenR3'splansand

invitedMr.LarsentoconsiderwaysforR3andRippletopartner

up

orotherwiseworktogether.

Mr.Rutter

explicitly

paymentsmarketitself.

statedthatR3hadnointerestin

entering,

Rather,

R3plannedtofocuson

working

tradesettlementandsecuritiesservices.ThismadesensetoMr.

orplansto

enter,

thecross-border

withthebanksinitsnetworkon

Larsen,

givenMr.Rutter's

backgroundintheseareas.AsRipple'scross-borderpayments

technology

was

already

well

developed,

Ripple's

Mr.Rutterexpressedkeeninterestin

settingup

adeal

whereby

R3couldresell

technology

toits

31.OnOctober

bankingpartners,benefiting

27,2015,

Mr.Rutterfollowed

bothparties.

up

withanemailtoMr.Larsen

expressing

thatR3was"quitekeentobegintoshapeacommercialdealthatwould

help

of

us"

andwasinterestedin

coming

toSanFranciscotocontinuetheconversation.On

November

9,

2015Mr.RuttercametoSanFranciscotomeetwithMr.LarsenandMr.

theboth

Garlinghouse,

achieving

tocontinue

itsgoals.

discussing

thewaysinwhichR3claimeditcouldassistRipplein

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41

Meanwhile, 32.

R3wascontinuedtomakepublicstatementsabouttheallegedgrowth

andstrengthofitsbankconsortium.OnOctober

28,2015,

R3announcedthatthreemorebanks

had

joined,bringing

thetotalto25.InaNovember

30,

2015newsarticlefeaturedinAmerican

Banker,

R3'sDavidRutterdiscussedtheR3consortiumofbanks

growingquickly

from9to

30,

stating

Mr.

thatthese

Larsen,

big

thesame

us."

bankshave"allcalled

Discussing

thisparticulararticle

by

emailwith

day,

Mr.RutterremindedMr.Larsenthatheremainedinterestedin

developing

ideasaroundhowthecompaniesmightcooperate.

33.OnDecember

17,2015,

R3toutedthatitsconsortiumhadadded12new

banks,

including

Banco

Santander,

togrowtoatotalof42.Soon

thereafter,

R3publicizedits

instrumentalrolein

connecting

bankstodistributedledger

technologyusing

thedigital

asset,

Ethereum.Ina

January20,

2016articleinInternationalBusiness

Times,

R3representedthatits

workwithEthereumwasa"significantmilestoneincollaborationfortheR3

consortium."

34.On

February12,2016,

Mr.RutteragaincametoSan

Francisco,

joinedthistime

by

other

colleagues,

tomeetoncemorewithMr.

Larsen,

Mr.

Garlinghouse,

andPatrick

Griffin,

Ripple'sVicePresidentforBusiness

Development,

tocontinue

discussing

thewaysinwhichR3

claimeditcouldassistRipplein

achieving

itsgoals.Atthis

meeting,

Mr.Rutterrepresentedthat

becauseR3wasfocusedon

sellingservices,

itscross-borderpayments

technology

toR3's

R3waswellpositionedtoaidRipplein

promoting

banking

partners.Mr.RutteralsodiscussedR3's

strategiesandhowR3couldpropelthesuccessofRipplewithR3'sextensivebankconnections.

AtnotimedidMr.RutterdiscusspotentialcompetitionwithRippleincross-borderpayments.

Tothe

contrary,

Mr.Rutterdiscussed

furtherthesuccessofRipple.

many

waysthatthecompaniescouldworktogetherto

35.On

February22,2016,

Mr.Rutteragainreachedouttothesenior

leadership

at

Ripple,including

Mr.LarsenandMr.

Garlinghouse,

pursuing

apartnership.Tofurtherentice

discussions,

toremindthemthathewasinterestedin

Mr.Rutterwrotethathewantedto"make

surethatweare

moving

forwardwithourplantogetourtechandcommercialteamstogether.

I

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41

Wearealsoquiteinterestedin

getting

youintoourlab

running

POC's

[sic]

withourbankmembersallthe

time,

Additionally

but

coincidentally

Iamsureyouare

(or

not)

Ihavehad

threeofthemreachouttomeinthelastweekorsotoaskaboutour

relationship

whichleadsme

tobelievethatthesebanksareabouttoembarkonyetanotherexperimentofsomesort.Ifwe

can

me

help

know."

youguys

Later,

bybuilding

abroader

community

aroundthisproject

bydoing

itinourlablet

R3continuedtorepeatrepresentationstoRippleaboutthestrengthofits

consortium,

so

many

forexample

members."

Thereafter, 36.

stating

inAugust2016thatR3'sconsortiumwas"a

growinggroup

with

thepartiesmovedforwardwithdiscussionstooperationalizeMr.

Rutter'sideaof

performing

atestofRipple's

technology

withsettlementthroughXRPwitha

numberofbanksthroughR3's

lab,

whichlatercametobecalledProjectXenon.Inthecourseof

these

conversations,

and

particularly

inconversationsbetweenMr.RutterandMr.

Larsen,

R3

representedtoRipplethatitsgoalin

forming

a

partnership

withRipplewastoensurethatthe

Ripple

Technology

wouldsucceedasthedominant

technology

inthemarketforcrossborder

payments.R3alsomadeclearthatitfeltthisprojectwasimportantforitsown

goals,

asa

numberofbankswerethemselves

pressuring

R3toruntheproject.InanemaildatedMarch

9,

2016,

Mr.RutterrepresentedthatR3"wouldliketobe

very

clearwiththebanksthat

gameIScommercializationofa

product."

Again,

inanemaildatedMarch

28,2016,

theend

Mr.Rutter

representedthesame:that

achieving

weallwanttodothesethings

anyway."

this"commercial

angle"

in

partnership

withRippleis

"why

NDAin

37.AsMr.Rutter

specifically

confirmed

-

"Guys,

Ihaveconfirmedthatwehavean

place

place"

alldisclosuresofsensitiveinformationbetweenthepartiesinassociationwith -

thesediscussionsoccurredundertheauspicesofaMutual

Confidentiality

Agreement.This

agreementrequiredbothpartiestohold

proprietary

andto

only

usesuchinformationinconnectionwith

informationoftheotherinstrict

confidence,

discussions,negotiations,

ordealings

betweenthepartiesaboutpotentialbusinesstransactionsorrelationships.Anditmadeclearthat

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ifone

party

weretoimproveoraltertheotherparty's

proprietaryinformation,

such

improvementsofalternationswouldremaintheexclusive

38.Intheperiod

leading

totheexecutionofthe

property

ofthe

Agreements,

disclosing

party.

R3continuedto

representtoRipplethatithadtheresourcesand

capability

to

help

Ripplesucceedasamarket

leader.For

example,

onanApril

1,

2016

call,

Mr.Larsen

expressly

statedtoMr.Rutterthat

of

41

Ripple'sgoalwastobecomeamarketleaderincross-borderpaymentsandtogrowXRPintothe

primary

digitalassetused

among

globalbanks.Mr.RutterrepresentedthattheR3teamnot

only

understoodthese

goals,

butpromiseditwouldputRippleandXRPonthemap-justasR3had

donewith

Ethereum,

another

cryptocurrency

onthemarket.

39.

By

the

spring

of2016thepartieshaddevelopedaconcretemulti-phaseplanfora

testofRipple's

technology

inR3's

lab,involving

concurrentdevelopmentofabroadercommercial

knownasProject

Xenon,

wouldinvolvea

group

severalR3

bankingpartners,

andforthe

partnership

betweentheparties.The

test,

ofbanksinR3'sconsortium

using

XRPwith

theRippleTechnology.

Concurrently,

thepartiesplannedto

develop

asustainedcommercial

partnership,possibly

intheformofaresaleagreement

whereby

technology.R3'srepresentationstoRipplemade

clear,however,

R3wouldresellRipple's

thatinwhateverformit

took,

thecommercial

partnership

wouldinvolveR3

leveraging

itsconsortiumwiththegoalof

financialinstitutionsuseXRPasabridgeassettosettlecross-bordertransactions

using

RippleTechnology.

having

the

40.

During

thesummerof

2016,

Mr.RutteralsoemphasizedtoMr.Larsenthatitwas

criticalthatR3becompensatedforitseffortsin

partnering

withRipplethroughanXRPoption

grant.Mr.RutterrepresentedtoMr.Larsenthatthiswashispreferredformofcompensation

becauseR3saiditbelievedthatithadhelpedto

significantly

increasetheusageofanother

cryptocurrency,Ethereum,

andR3expectedasimilarresultforXRP.Throughanoption

grant,

Mr.Rutter

proposed,

thepartieswouldensure

they

hadalignedincentivestoworktogetherto

increasethevalueofXRP

bypartnering

topromotetheRippleTechnology.

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41.Alsothat

summer,

on

July11,2016,

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of

41

RippleVicePresidentofbusiness

developmentPatrickGriffinmetwithR3co-founderToddMcDonaldinNewYorktocontinue

todiscussapotentialcommercial

partnership

thatfocusedonRipple'ssoftwareandtheuseof

XRPforsettlement.Atthis

meeting,

Mr.McDonaldre-confirmedtoMr.Griffin

that,

asMr.

RutterhadstatedearliertoMr.

Larsen,

R3hadnointerestin

entering,

orplansto

enter,

the

paymentsspaceitself.

Rather,

R3wasfocusedonsecuritiesandtradefinance.

Thereafter, 42.

R3continuedtorepresenttoRipplethatR3hadtheresourcesand

capabilitiesto

Throughoutthe

help

Ripplebeahugesuccessinthemarketforcross-borderpayments.

summer,

R3continuedtomakerepresentationsaboutitscontinued

expansion,

touting

theaddition

Asian,

Latina

American,African,

andotherbanksandfinancialinstitutions

inpressreleasesonJune

1,2016,

June

15,2016,

June

23,2016,July12,2016,

August

2,

2016.

OnAugust

3,2016,

Clemens

Wan,

anAssociateDirectorat

R3,

sentanemailtotheRippleteam

assuring

Ripplethat"[o]nceprojects[likeProject

generally

involved"anincreaseofscopeandmore

WanrepresentedtoRipplethatR3was

uniquely

completed"

Xenon]

members."

capableof

are

Again,

delivering

becauseR3'sconsortiumwas"a

growinggroup

withso

many

members."

followonprojects

onAugust

15,2016,

Mr.

eagerbankstothetable

Morepressreleasesas

tothegrowthandstrengthofR3'sconsortiumcontinued

thereafter,

withR3

announcing

on

August

31,

2016thatitsconsortiumnownumbered60members.

43.OntheeveofRipple

by

R3'sMr.Rutter.In

communications,

signing

forwardwiththecommercial

partnership

theTPAwith

R3,

therewerestillmoreassurances

R3'sJacobFarberexpressed

uncertainty

in

moving

betweenthecompaniesthathadbeendiscussed

betweenRipple's

Larsen,Garlinghouse,

andGriffinandR3'sRutterandMcDonald.Toensure

thatMr.Farber'sstatementsdidnotreflectachangeinR3'sintentionsorgoalswithregardsto

theTPAand

2016,asking

Option,

Mr.GarlinghouseemailedMr.Rutteron

Thursdayafternoon,

August

11,

foracalltoaddressareasthathadbeenstalledbetweenthecompanies.Although

Mr.Rutterwas

traveling

inAustraliaatthe

time,

andhisassistantreportedthatitwasdifficultto

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41

reach

him,

Mr.RuttermadetimetotalkwithMr.Garlinghousethe

followingMonday,

August

15,

2016.Inthat

call,

Mr.RutterreiteratedthatR3hadtheresourcesand

capability

to

help

Ripplebecomealeaderinthemarketforcross-border

payments,

assuredMr.Garlinghouseasto

R3'scommitmenttothefuturephasesofR3'sandRipple'santicipatedcommercial

partnership,

andreassuredMr.GarlinghousethatMr.Farber

simply

hadbecomean

unnecessary

bottleneckto