Ripple puts SEC to shame in latest legal round

Rick Steves

Yesterday, Ripple formally opposed the motion and seems to have made quite an impact within some attorney circles. The defendant explored those two citations, their omissions and misrepresentations. 

Ripple filed its Memorandum of Law in opposition to the SEC’s motion to strike Ripple’s lack of due process and fair notice affirmative defense.

In other words, the Securities and Exchange Commission filed a motion to remove the ‘lack of due process and fair notice’ defense from the lawsuit. Aimed at the heart of Ripple’s defense, the document was sent to the court in late April.

“To the SEC’s knowledge, no federal court has accepted a defendant’s argument that the term fails to provide the constitutionally required notice; indeed, in the realm of offers or sales of digital assets, at least two district courts in this Circuit have rejected that argument”, the regulator argued.

In the letter, the SEC cited two examples of how Ripple’s fair notice defense supposedly will impose unfair supplemental discovery obligations on the agency.

Yesterday, Ripple formally opposed the motion and seems to have made quite an impact within some attorney circles. The defendant explored those two citations, their omissions, and misrepresentations.

“The SEC omits key parts of the discussions it cites. First, the SEC provides as an example Defendants’ requests for discovery of certain internal communications at the SEC, and quotes Ripple’s counsel stating that this discovery ‘has a great relevance . . . to our fair notice defense.’

“The ellipses that the SEC inserted remove the word ‘both’ from the quotation, and the SEC also omits the end of the quotation. Ripple’s counsel clearly stated that the discovery is relevant ‘both’ to the fair notice defense “and the same . . . applies to whether the individual defendants were reckless or had knowledge that XRP would be found to be a security.

“Second, the SEC represents that Magistrate Judge Netburn ‘reasoned that [the discovery] could conceivably be relevant to Ripple’s fair notice defense.’ The SEC misstated what Judge Netburn said. Judge Netburn stated that the SEC’s own decision to charge the individuals with aiding and abetting — a claim that requires proof of scienter – was sufficient to open the door to this discovery”.

It is safe to say that no Judge likes to be misquoted for the sake of the argument being made, in this case, the SEC’s motion to strike Ripple’s lack of due process and fair notice affirmative defense.

The use of “. . .” ellipses are also unlikely to be welcomed when they try to hide facts that hurt the SEC’s position.

“See the second paragraph. Judge Netburn didn’t say the discovery could conceivably be relevant to the fair notice defense. She said she thinks it is relevant to the fair notice defense”, said Attorney James K. Filan on Twitter.

“The #SEC_NEWS misrepresented what the Judge actually said. That’s a bad move by the #SEC_NEWS”, he continued, adding “To paraphrase Will Rogers, when you find yourself in a hole, put down the shovel.”

“If you are interested in the SEC v. Ripple lawsuit you have GOT to read this Memo of Law by Ripple. It’s like listening to Zeppelin while driving a Ferrari and sipping on a chocolate milkshake”, said Attorney Jeremy Hogan.

The SEC v. Ripple lawsuit has been filed with twists every other day, which in turn feeds the market sentiment of the XRP.

A few weeks ago, CFTC Commissioner Stump has expressed the CFTC’s attention to the lawsuit filed by the SEC against Ripple Labs and its co-founders for having sold more than 14.6 billion XRP tokens worth $1.38 billion in an unregistered offering.

“I am watching the outcome of this case closely because it will help to establish the scope of the SEC’s authority in the digital assets space”, Commissioner Stump said, drawing attention to SEC Commissioner Hester Peirce’s work regarding the application of the “Howey test” to digital assets, which provides the framework for determining whether certain assets are securities.

In the context of the SEC’s lack of clarity, XRP holders’ lawyer John E. Deaton said it “doesn’t take an expert to see that plenty is very wrong, very corrupt and very outrageous about the SEC’s lawsuit against Ripple”.

Not only the regulator is being attacked for having filed the complaint the day before Chairman Jay Clayton left his position, but for accusing Ripple’s co-founders of bad faith while also being unclear about the security status of XRP, in what Brad Garlinghouse called “ironic”.

The SEC has recently raised eyebrows for protesting against a subpoena on One River Asset Management, which hired ex-SEC Chairman Jay Clayton after he filed the complaint against Ripple the day before leaving office.

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