Ripple lawsuit: Judge says XRP sales “not predominately foreign” as executives lose motion

Rick Steves

These offers and sales were made by U.S. residents, involved alleged securities issued by a U.S. company, concerned at least some offers and sales made on U.S.-based platforms, and included at least some offers and sales made to U.S. purchasers.

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The same day the SEC v. Ripple case saw the judge denying the SEC’s motion to strike Ripple’s fair notice defense, Magistrate Analisa Torres also denied Chris Larsen and Brad Garlinghouse’s motion to dismiss the SEC’s complaint against them.

The court denied the individual defendants’ request because it assumes the SEC has adequately alleged the existence of a securities law violation. Still, the SEC must show the individual defendants “joined the specific venture and shared in it, and that their efforts contributed to success”.

The SEC must also show their general awareness of their overall role in Ripple’s illegal scheme, said the judge, who further explained.

“Notably, the SEC need not demonstrate that the Individual Defendants were aware that Ripple’s scheme was illegal. Rather, the SEC must show that the Individual Defendants knew, or recklessly disregarded, the facts that made Ripple’s scheme illegal.”

XRP offers and sales not predominately foreign

Judge Analisa Torres also dismissed the argument that XRP sales were “predominately foreign” as the court found Larsen’s and Garlinghouse’s offers and sales were made by US residents.

“The Second Circuit has held that the presence of a “domestic” securities transaction is a necessary but not sufficient predicate for invocation of U.S. securities law. And, when transactions involve “wholly foreign activity clearly subject to
regulation by foreign authorities,” the Second Circuit has found securities law violations to be predominately foreign, and, therefore, outside of the territorial scope of U.S. securities law. In the two cases where the Second Circuit determined that violations were predominately foreign, the “conduct [ ] occurred in a foreign country, [and] concern[ed] securities in a foreign company, [that were] traded entirely on foreign exchanges.”

“Here, the Court finds that the Individual Defendants’ offers and sales were not predominately foreign. These offers and sales were made by U.S. residents, involved alleged securities issued by a U.S. company, concerned at least some offers and sales made on U.S.-based platforms, and included at least some offers and sales made to U.S. purchasers. Thus, the application of Section 5 to these offers and sales would “enhance confidence in U.S. securities markets [and] protect U.S. investors.”

While Chris Larsen and Brad Garlinghouse lost their separate motion, Ripple has scored a major win. The fair notice defense was allowed by Judge Torres, who denied the SEC’s motion to strike.



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