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Ripple defense ‘legally insufficient’

Key Points

  • On Apr. 22, the SEC claimed that the court should dismiss Ripple’s defense as “legally insufficient.”
  • The SEC stated it was simply doing its job as bestowed by the U.S. Congress, and Ripple should not deter the process.
  • In another document, the SEC criticized Ripple’s attempt to stop the agency’s report with foreign regulators regarding XRP sales.

In a recent development, the U.S. Securities and Exchange Commission (SEC) struck Ripple’s most recent legal allegations in the current lawsuit.

Ripple “Fair Notice” Defense Collapses

In 2020, the federal agency filed a lawsuit versus Ripple for apparently trading $1.3 billion in XRP; which the SEC has asserted is unreported security.

Ripple’s legal team asserted that the company’s execs, Chris Larsen and Brad Garlinghouse were oblivious of any breach. They were not aware of a breach of the U.S. securities law when selling XRP. They declare that the SEC should have dispatched a prior notice before taking things into legal action.

The “fair notice” justification, in defense by Ripple’s lawyers. They claim that the SEC wasn’t able to warn Ripple about violating the law prior to going for the lawsuit. The SEC has since replied in a legal document. They stated that the court should discharge Ripple’s fair notice defense as it is “legally insufficient.”

SEC stated that,

“This defense—focused on what the SEC did not do before it filed this enforcement action—is legally insufficient and should be stricken.”

The agency in addition that its job was to probe any possible violations, not issue counsel before practicing its power.

The SEC reported that,

“The implications of Ripple’s defense—that to prosecute violations of the securities laws the SEC must provide specific notice of the illegality of certain conduct in advance of filing its action—turns the statutory regime on its head.” 

Moreover, the agency stated that two U.S. courts have already discharged the fair notice dispute in the circumstances of illegal sales of digital assets to boost funds in previous cases.

In accordance with the document, Ripple’s founders also obtained advice from a respectable law firm about the risks linked with the sale of XRP and how it could breach federal securities laws. The SEC assumed that Ripple’s executives knew the chances of selling XRP. 

The age, “Ripple understood but decided to assume the risk that this action could be filed.”

SEC disputed that during 20167, had previously warned in a report that increasing capital using the sale of digital assets is a matter of rigorous assessment under govermental securities regulation.  

They considered that before its action against Ripple, it had already charged multiple individuals and firms, such as Telegram and Kik. SEC did not give prior notice in these incdents.

SEC’s Job Hindered

Ripples defense is Legally Insufficient - SEC

In a separate document, the SEC also denounced Ripple’s effort to stop the agency’s message with foreign regulators concerning XRP sales.

Earlier, the SEC issued 11 requests to 9 foreign regulators to gain information about firms that used XRP, including exchanges and Ripple’s ODL customers.

The SEC stated it was searching data on Ripple’s XRP sales to cryptocurrency exchanges in countries such as Japan that may support its investigation through discretionary requests. Using invites, the agency tried to understand whether Ripple’s announcements influenced XRP’s price fluctuations.

In reaction, Ripple filed a motion with the U.S. Court, demanding such investigation was not allowable through Federal Rules of Civil Procedure.

The SEC remarks that there is no such stipulation under the law that prevents it from creating any requests for the “discovery process” and that such proposals are standard.

In the letter to Judge Sarah Sarah Netburn, the SEC counsel implied that the defendants (Ripple’s executives) might deliberately attempt to prevent access to data on XRP in countries outside the U.S.

As reported by the SEC,

“Yet, despite advancing these arguments and assuring the Court that they will produce all records respecting their trading in XRP, the Individual Defendants (Larsen and Garlinghouse) have not turned over a single document concerning a non-U.S. domiciled digital asset account or otherwise explained the significance of these XRP transfers.”

The SEC stated it was only doing its job as bestowed by the U.S. Congress, and Ripple should not hinder the process. Searching details from third parties through requests is critical to its investigation, the agency said.

It is not the first time Ripple had listed a motion to reject that hindered the SEC’s investigation. The payments firm was once able to block the SEC from looking into its executives’ bank records.

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