Ripple Labs continues to put up a strong fight against the U.S. Securities and Exchange Commission (SEC), and their latest filing is no exception, as they directly counter the SEC’s Letter of Supplemental Authority regarding the regulator’s Motion for Summary Judgment with a confident and robust response.
In a recent development within the ongoing legal battle between the US Securities and Exchange Commission (SEC) and Ripple Labs, the SEC referred to a separate enforcement action against investment advisory firm Commonwealth Equity Services to bolster its case. However, Ripple’s legal team has swiftly responded, arguing that the cited case does not impact their fair notice defense.
The SEC’s case against Ripple Labs — “SEC v Ripple Labs Inc. et al. No 20-ev-10832 (AT) (SN) (S.D.N.Y)” — alleges that the company and two of its executives, Brad Garlinghouse and Chris Larsen, raised over $1.3 billion through an unregistered, ongoing digital asset securities offering. One of Ripple’s main defenses is that the SEC failed to provide fair notice before filing the securities fraud lawsuit in December 2020.
On April 11, the SEC addressed the judge presiding over the case, emphasizing the Commonwealth ruling, which determined that a long-established court precedent offers sufficient fair notice. The SEC argued that the precedent that led to the Howey test’s development provides Ripple Labs with adequate notice regarding what constitutes a security. The SEC further asserted that their case against Commonwealth lends additional authority to dismiss Ripple’s fair notice defense.
However, Ripple’s legal team filed a response on April 13, arguing that the cited Commonwealth case does not provide additional authority for rejecting their fair notice defense. The letter addressed to District Judge Hon. Analisa Torres pointed out the differences between the two cases. Ripple’s defense highlighted the lack of contemporaneous evidence in the Commonwealth case, whereas Ripple’s situation involves abundant evidence, including communications from the SEC to third parties, showing that reasonable market participants did not consider Ripple’s offers and sales of XRP as investment contracts.
Furthermore, Ripple’s response emphasized that the threshold issue in their case is whether the Securities Act applies to their offers and sales of XRP. The legal team argued that the SEC’s reference to an “unbroken chain of district court decisions rejecting fair notice defenses” is irrelevant, as the Court had already dismissed the SEC’s reliance on those cases. Ripple’s defense maintained that the closest case, Upton, is a binding precedent and ruled in favor of the defendant’s fair notice defense, urging the Court to follow suit.