SEC v Ripple: co-founders file to dismiss case

Rick Steves

The motion to dismiss the complaint against the co-founders of Ripple Labs follows a string of wins for the defendants, the most recent being Judge Sarah Netburn granting the defendants’ motion to reject the SEC’s access to eight years of co-founders Garlinghouse and Larsen’s personal information.

Brad Garlinghouse and Chris Larsen, the co-founders of Ripple and defendants along with Ripple Labs in the SEC v Ripple lawsuit, have filed twin motions to dismiss the case against them.

Each Ripple co-founder filed a Memorandum of Law in support of their motion to dismiss the amended complaint.

In sum, the documents argue that the SEC claims fail because the AC does not plausibly allege that the co-founders knew or were reckless in not knowing that Ripple was violating section 5 or acting improperly.

The motion also argues that the SEC’s first claim fails because the AC does not allege that their personal offers or sales of XRP occurred in the United States. Even if their conduct in the US were relevant, the transactions in question are predominantly foreign and accordingly outside the scope of Section 5.

The conclusion: “For the foregoing reasons, the amended complaint should be dismissed with prejudice”.

The motion to dismiss the complaint against the co-founders of Ripple Labs follows a string of wins for the defendants, the most recent being Judge Sarah Netburn granting the defendants’ motion to reject the SEC’s access to eight years of co-founders Garlinghouse and Larsen’s personal information.

Prior to that, Judge Analisa Torres had granted XRP investors’ request to submit a motion to intervene.

A significant win for the cryptocurrency firm was determined in April 6. U.S. Magistrate Judge Sarah Netburn ruled in favor of granting Ripple Labs access to the SEC internal discussions over cryptocurrencies.

Mr. Garlinghouse’s counsel Matthew Solomon believes that it could be “game over” for the whole case if the defense finds information suggesting the SEC thinks or thought XRP was akin to bitcoin or ether, which would be outside the scope of the SEC.

In March, Judge Torres dropped a ‘bombshell: “My understanding about XRP is that not only does it have a currency value but it has a Utility and that utility distinguishes it from Bitcoin and Ether.” The statement admits to XRP’s utility and currency value.

Although there is growing optimism among Ripple co-founders and XRP holders, Brad Garlinghouse said the firm is ready to march on without the XRP-based settlement platform if it loses the legal battle against the US regulator.

The lawsuit, which complaint was filed the day before former Chairman of the Securities and Exchange Commission left the position, is based on the premise that XRP is a security and thus under the scope of the SEC.

The use of the Howey test is a key factor for the SEC action. The test which is relied upon for more than 70 years is used to determine whether a transaction should be classified as an investment contract and therefore registered as a security.

A recently published research paper by Professors at Rutgers Law School argues that the Howie test is no longer suitable for judging 21st-century innovations.

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