XRP lawsuit: Court states its terms to side with Ripple on Fair Notice

Rick Steves

If XRP was not sold as an investment and if Ripple didn’t have a relationship with the vast majority of XRP holders, then the Court might side with Ripple on the Fair Notice defense.

The SEC v. Ripple case has seen two relevant rulings take place last week. Judge Analisa Torres denied two motions: the individual defendants’ motion to dismiss the case against them and, more importantly, the SEC’s motion to strike the fair notice defense.

Attorney Jeremy Hogan, Partner at the Orlando-based Hogan & Hogan law firm, shared his analysis on what he called a “huge week” for the XRP lawsuit.

Ripple’s Fair Notice could undermine SEC’s future lawsuits

Attorney Hogan chose to focus his analysis on the SEC’s failed motion to strike Ripple’s fourth affirmative defense as it is the more relevant for the outcome of the lawsuit, the future of XRP, Ripple, and even the crypto industry.

The fair notice defense consists of putting the SEC’s own actions on trial, including ex-SEC William Hinman’s 2018 speech, where he said BTC and ETH were not securities.

As expected, the SEC moved to strike that particular defense, arguing there was no legal basis for it, having filed the motion over ten months ago.

Magistrate Analisa Torres has finally come to a decision on the matter and denied the SEC’s motion: the Fair Notice survived.

Jeremy Hogan stood by his own previous analysis in which he states that Ripple’s argument that sales of XRP were not securities are stronger than its Fair Notice Defense, but that the FND might be more important.

He explained the US court system’s hierarchy and that if Ripple wins on a fair notice defense it becomes the persuasive authority for any crypto company the SEC sues from that point forward.

“If the Fair Notice defense survives and Ripple wins, the SEC will have an uphill battle winning any lawsuits they bring”.

“Even if Ripple loses the FND, they can appeal the ruling and if an Appellate court determines Judge Torres was wrong and Ripple did not have fair notice, then the SEC is really in trouble because that ruling is binding on every Crypto lawsuit that comes along.”

What court wants to know ahead of Fair Notice

The FND did survive and now “the SEC has really big problems”, he said, adding the order is so good that Ripple won “not once, but twice”, as he pointed to a footnote on the court’s order.

On that footnote, Judge Torres dismissed the SEC’s request to consider the 75 previous enforcement actions in crypto-related lawsuits as fair notice.

“To the extent that the SEC urges the court to adopt this characterization of these enforcement actions, the court rejects such a suggestion because the report’s analysis and conclusions with respect to these actions are not proper subjects for judicial notice.

“Moreover, to the extent that the SEC requests that the court parse each of these filings to determine the underlying facts and legal basis for the enforcement actions and draw conclusions that they are similar to the enforcement action taken against Ripple, the court declines to do so”.

In addition, Magistrate Torres pointed out what critical factors may weigh in a future summary judgment on the Fair Notice defense: if XRP was or not sold as an investment and if Ripple has or not any relationship with the vast majority of XRP holders.

Ripple denies both claims and, according to the court, it can make all the difference in terms of fair notice.

“If true, would raise legal questions as to whether Ripple had fair notice that the term “investment contract” covered its distribution of XRP, and the court may need to consider these questions more deeply.”

Jeremy Hogan then reminded that most XRP holders have no connection to Ripple and many haven’t even heard of the company when they bought the digital asset.

As to “investment contract”, the court will have to evaluate as to whether XRP moves in correlation to Ripple’s activities and, as attorney Hogan stated, XRP has been historically correlated with Bitcoin et al.

In addition, the burden proof is with the SEC. The expert discovery will have experts offering their analysis and claims that suit each party. “If the Judge can’t figure out which is correct, Ripple wins”, the attorney said.

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