XRP vs SEC – Ripple Lawsuit Heats Up Ahead of Court Deadline
Faced with some of the most serious violations the SEC can levy on a financial firm, executives from XRP “brought out the big guns” this week by filing a motion this week asking a U.S. District Court Judge to force government regulators to air its dirty laundry on the public record.
XRP vs SEC – Background on the Case
In December 2020, the U.S Security & Exchange Commission alleged that Ripple, creator of XRP (formerly the largest altcoin in crypto), was in violation of numerous federal laws. In its initial filing, regulators attempted to acquire internal memos in which the government alleges the current & former CEOs of Ripple knowingly & willingly discussed the sale of their token regardless of its status as an unregistered securities offering. In doing so, Ripple would be in clear violation of The Securities Act of 1933 one of the cornerstone laws in the securities industry.
The ’33 Act was created in response to rampant collusion both during and after the Crash of ’28. The statute in question was created to provide brokers with a guidebook for registering a security, and specifically in Ripple’s case, the information brokers must provide to the public as a means of transparency into the legality of the offering.
In May of 2021, a U.S. District Court Judge denied the governments request and allowing Ripple their first chance at a counterattack: a motion of their own which would make public record the company’s XRP sales on Binance, which ultimately would ultimately hurt the SEC’s case on ground of the ’33 Act. In its’ motion Ripple’s legal team claimed the “overwhelmingly (majority of Ripple trades) made on digital asset trading platforms outside of the United States.”
In December 2020, The SEC first alleged that XRP, formerly the largest altcoin in crypto, was a $1.3-billion unregistered securities offering. The SEC then tried to acquire Ripple’s internal communications about the sale of their token in May 2021, but a US court denied this request.
Ripple then managed to get the legal go-ahead to access to information about the company’s XRP sales on Binance, which ultimately hurt the SEC’s case against Ripple using the securities act, as it only applies to domestic offers and sales, as Ripple’s legal team claimed, were “overwhelmingly made on digital asset trading platforms outside of the United States.”
Ripple Ordered To Hand Over 1 Million Slack Messages To The SEC
In a return volley, the SEC was granted a motion which orders Ripple to share 1 million Slack messages that were not previously shared with the SEC which Ripple estimates will cost in excess of $1 million.Source: CryptoSlate
Ripple, objecting to the motion given the financial burden of producing these messages, was overruled by U.S. Magistrate Judge Sarah Netburn, who stated that “any burden to Ripple is outweighed by its previous agreement to produce the relevant Slack messages, the relative resources of the parties, and the amount in controversy”.
The Securities and Exchange Commission asserted that Ripple’s incomplete production of Slack messages was “highly prejudicial,” claiming that the entire record of messages was highly relevant to their case, stating “These messages include: (a) discussions about Ripple’s desire to create speculative trading in XRP, (b) the effect of Ripple announcements and efforts on, and Ripple’s concerns as to, the price of XRP, the relationship and central importance of XRP sales to Ripple’s overall business, and (d) the regulatory status of XRP.” In hindsight, the ruling should not come as a shock to any reader as Ripple first denied leaving out any Slack messages then changing its stance, claiming omittances were related to a “data processing error” in its systems.
Is XRP the Favorite Altcoin of SEC Employees?
On August 27th, in what their firm hopes will be the coupe de grace against regulators, Ripple Labs CEO Brad Garlinghouse and Executive Chairman Chris Larsen filed a motion asking the U.S. District Court for the Southern District of New York to compel the SEC to produce data and documents regarding the SEC’s unregulated/vague handing of enforcement against providers of digital assets.
First, Ripple is leaning on the testimony of two former SEC Commissioners whom, under whistleblower status, allege that the SEC intentionally produced vague regulations for digital asset providers to follow, leaving the door open to investigate firms “whenever they wanted to”, allow for significant fines to be levied, and intentionally provide the ability to create precedence for appeals.
Second, the motion sets out to collect “anonymized documents which prescribe guidelines for trading digital asset by SEC staff”. Ripple believes these documents will prove the SEC had “not adopted or imposed” any rules to keep their staff from trading digital assets – such as Ripple – and only provided clarity on trading securities such as Bitcoin and Ether.
Lastly, SEC staff members may be forced to reveal their crypto currency assets and should staff members have held these tokens concurrently without penalty, the SEC will have been found to have imposed stricter regulations on Ripple than it did on its own staff and would “undermine the SEC’s allegations that the Individual Defendants were reckless in failing to determine as early as 2013 that offers and sales of XRP were securities.”
The SEC has until September 3rd, 2021 to respond to Ripple’s motion, however, experts like Ripple’s own attorney Jeremy Hogan believe a final decision won’t be reached until early 2022.
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