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Ripple’s Latest Chess Move vs SEC

Ripple executives will dismiss SEC lawsuit over XRP sales.

The executive chairman of Ripple, Chris Larsen and its CEO Brad Garlinghouse have asked the US courts to dismiss the US Securities and Exchange Commission’s lawsuit claiming securities violations associated with the sale of the XRP token against them.

A legal letter informs Judge Analisa Torres at the US District Court for the Southern District of New York of a motion to dismiss shows lawyers for Larsen argued that the SEC’s amended complaint has failed to “state a claim” against the firm’s executive chairman.

At the same time, Brag Garlinghouse’s legal counsel has presented the court with arguments to dismiss the lawsuit. In a letter that was sent to Judge Torres, Garlinghouse’s legal counsel Matthew Solomon described the case as “plain and simple” regulatory overreach.

Late last year, the SEC sued Ripple. Its CEO Brad Garlinghouse and chairman Chris Larsen allege the firm and its executives “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.” Both executives used somewhat similar arguments in their documents.

Larsen’s lawyers argued that the SEC failed to show how the executive knew that time XRP would be considered a security, and Ripple’s activities were not appropriate. They point to the Department of Justice and the Financial Crimes Enforcement Network (FinCEN) considering XRP a “virtual currency” and not a security. Their letter reads:

“The SEC’s own allegations are not only deficient but affirmatively show it cannot meet this standard. At a minimum, the SEC must allege that it was ‘so obvious’ that XRP transactions were securities and Ripple’s conduct was improper that Mr. Larsen ‘must have been aware of it.’”

The lawyers argued that the regulators failed to show Larsen provided “substantial assistance to Ripple in selling his XRP tokens”, nor did the regulator show his transactions were within the US and, as such, within their jurisdiction.

At the same time, Solomon described that Garlinghouse was just doing his job when selling XRP, and pointed out that the SEC failed to properly prove that Garlinghouse’s XRP fell in the scope of the Securities Act – if they were even considered investment contracts.

Solomon highlighted that the Securities Act can be applied to the sales within the US, but the SEC failed to show connected transactions that the CEO executed in the country. On top of those arguments, Garlinghouse’s team pointed to FinCEN seeing XRP as a virtual currency, requiring Ripple to implement anti-money laundering controls that won’t be applicable to securities transactions.

Ultimately, Larsen’s defense also alleged the SEC’s claim for monetary relief is time-barred:

“Because the SEC has alleged that the sales of XRP over a multi-year period constituted only one offer … the statute of limitations began to run in 2013 and expired in 2018.”

Ripple also argued that the lawsuit “already affected countless innocent XRP retail holders with no connection to Ripple.” It continued it “muddied the waters for exchanges, market makers, and traders.”

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