Ripple: “Remarkable” omission in SEC’s last shot at striking fair notice defense

Rick Steves

“The SEC’s omission of this fact from its “sur-surreply” application is remarkable”.

The Securities and Exchange Commission has filed a Sur-Sur-Reply regarding its motion to strike Ripple’s fourth affirmative defense also known as the fair notice defense.

The SEC insists the court considers the SEC v. LBRY ruling earlier this year to counter Ripple’s argument that the Court cannot consider the SEC’s public enforcement actions in the digital asset space filed before this lawsuit.

SEC: LBRY proves prior enforcement cases valid

In striking LBRY’s fair notice defense, the court observed: “the SEC has brought at least 42 failure to register claims against other digital currency creators, with at least 19 of those actions asserting registration violations without accompanying allegations of fraud”.

“LBRY’s admission that the SEC has been pursuing enforcement actions against multiple other digital currency creators dooms its selective enforcement defense”, the SEC cited the court ruling.

The SEC believes the LBRY case refutes Ripple’s Sur-Reply contention that the Court cannot consider the SEC’s prior digital asset cases. In addition, it dispels Ripple’s argument that the SEC’s history of digital asset enforcement actions does not justify striking Ripple’s “fair notice” defense at the pleadings stage.

Ripple says SEC’s key omission is remarkable

Ripple Labs responded to the SEC’s filing and started out by pointing to its attempts “to introduce a new – and irrelevant – argument based on a recently decided case”, when a “sur-sur-reply” is not the place for new material.

Regardless, the LBRY decision says nothing about fair notice, Ripple continued. “In LBRY, the court granted judgment on the pleadings on LBRY’s selective enforcement defense. Contrary to the SEC’s claim, this defense is not “similar” to
Ripple’s fair notice defense; it is much harder to prove and much easier to strike.

“Indeed, LBRY separately pled a fair notice defense that the SEC did not even ask the court to strike, and which remains pending in that case. The SEC’s omission of this fact from its “sur-surreply” application is remarkable”. 

John Deaton, James K. Filan, and Jeremy Hogan comment

A few of the most influential members of the XRP community commented on the back and forth between the SEC and Ripple as the window on the SEC’s motion to strike closes.

“This isn’t a big deal. The SEC wants to write another paragraph or two based on this LBRY case decision that came out Feb 7. Even if Judge Torres denies the request, the SEC brought the case to her attention by this letter. This LBRY decision has little to zero impact”, said John Deaton, representing 65,000 XRP Holders as Amicus Curiae in the SEC v. Ripple lawsuit.

“The decision from the LBRY case that the SEC submitted to the Court is irrelevant to the Ripple case”, said attorney James K. Filan.

Attorney Jeremy Hogan pointed out that “LBRY actually asserted a Fair Notice Defense and not only did it not get stricken, the SEC didn’t even TRY and strike it. So, how a trial-level court striking a completely different affirmative defense in that case is relevant…I don’t understand.

“In fact, I’m pretty sure that Ripple will do a little legal judo and spin this into a positive for it because the SEC didn’t even move to strike the FND in the LBRY case. Sometimes you don’t want to try and throw EVERY case into a pleading. This was one of those times I think”, Hogan added.

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