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SEC rejects lawsuit dismissals by Ripple chiefs based on ‘scienter liability’

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  • According to the SEC, Ripple executives Garlinghouse and Larsen “avoided knowing that XRP could be found to be a security” in order to profit financially.
  • Both had a “strong financial motive” to intentionally ignore the risk.

In the U.S. Securities and Exchange Commission’s (SEC) legal battle against Ripple, both parties continue to engage in heated exchanges. After the SEC sent a letter to the court only the day before yesterday, on March 9, discrediting two key defense strategies of Ripple, “Due Process” and “Fair Notice”, as “legally improper”, the SEC has now followed up yesterday with regard to the individual claims against Brad Garlinghouse and Chris Larsen.

As CNF reported, Garlinghouse and Larsen had each filed a letter on March 03 indicating their intent to file a motion to dismiss the SEC’s amended complaint. Yesterday’s letter is now a response to that and provides reasons why the dismissal of the individual claims is not warranted, according to the regulator. In its response to Garlinghouse’s letter, the SEC comments:

The Letter makes clear that, rather than move to dismiss based on a sound legal theory, Garlinghouse plans to use the motion to air his grievances against the SEC, an effort that will waste considerable litigant and judicial time and resources.

Ripple chiefs have “recklessly disregarded” it

Essentially, the SEC points to two critical facts to prevent dismissal of the lawsuits: knowledge, or at least gross disregard, of XRP’s status by Garlinghouse and Larsen, and dismissal of the lack of territoriality. With respect to the first argument, the SEC writes

[…] he knew, recklessly disregarded, or consciously avoided knowing that XRP could be found to be a security. […]

In fact, Garlinghouse knew that XRP was under SEC scrutiny and took a risk as to whether the SEC would file an enforcement action seeking to hold him accountable. Having lost that gamble, Garlinghouse now seeks to blame the SEC for his own misconduct. The complaint adequately pleads Garlinghouse’s aiding and abetting.

The linchpin is thus the “scienter” argument. To support this, the SEC sets forth that Ripple’s Chief Compliance Officer told Garlinghouse that XRP has “securities-like” characteristics. Moreover, Ripple’s CEO had expressed to investors that he “that he could ‘not guarantee’ that the SEC would not conclude XRP was a security”. Further, Garlinghouse had also had a “strong financial motive”  to intentionally ignore this risk:

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[…] he stood to profit by hundreds of millions of dollars from his unregistered sales of XRP and understood that, if Ripple could not sell XRP to fund its operations, it would essentially cease to exist. This allegation permits a reasonable jury to conclude that Garlinghouse acted with the requisite scienter. 

SEC rejects lack of territoriality

As a second key argument to prevent dismissal of the claims, the SEC posits that the complaint relates to “a domestic offering of securities” to a “sufficient extent.”

The Complaint sufficiently alleges that Garlinghouse’s offers and sales of XRP occurred “within the United States” under Regulation S for various reasons, including because he offered and sold XRP to persons in the U.S., made directed selling efforts with respect to XRP to U.S. investors, and made no efforts to stop any XRP purchased by non-U.S. investors from being resold to U.S. investors.

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Ripple Deepens its Footprint in The Middle East Through Pyypl

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Ripple deepens its footprint in the Middle East region through a partnership with international blockchain-based financial services company Pyypl.

Ripple announced the news in a blog post on Monday, October 25. Through the partnership, two companies aim to bring instant, low-cost remittances to the Middle East and North Africa (MENA) region, starting with the United Arab Emirates (UAE).

Pyypl is a non-bank financial services provider focusing on the Middle East, Africa, and Central Asia. According to the announcement, Pyypl has started using RippleNet’s On-Demand Liquidity (ODL) payment service in the Philippines. This means users of Pyypl can now send money from UAE to the Philippines. The companies have plans to expand the ODL-powered payment network to new markets as well as explore additional use cases in the future.

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ODL is the payment service provided by Ripple’s global payment network RippleNet. Through the On-Demand Liquidity (ODL) service, RippleNet leverages the digital asset XRP as a bridge between two currencies, eliminates pre-funding of destination accounts, reduces operational costs, and unlocks capital.

In ODL, the money to be sent is converted to Ripple native token XRP and then sent over by using Ripple’s XRP ledger. On the receiver side, XRP can be converted back to the currency the receiver wants.  According to the company, sending money anywhere in the world takes as little as three seconds.

According to Ripple, the Middle East and North Africa (MENA) region is home to two of the top three remittance corridors in the world. Traditional remittances are often plagued by slow, expensive, and opaque transactions. However, by using ODL and XRP, Pyypl will now provide instant, low-cost remittance options for people sending money into and out of the region. The announcement notes that “XRP will not be held within the UAE and transactions will not involve the currency AED as part of the payment flow.”

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Antti Arponen, Co-Founder and CEO of Pyypl, commented:

“We’re excited to be Ripple’s first partner of choice to bring the deployment of ODL to the Middle East. This enables our ever-increasing number of users to deliver remittances instantly and cost-effectively. We’ve also reduced our inefficient use of capital through ODL, and look forward to an exciting rollout of its capabilities across the region.”

Ripple is not the new entrant to the MENA region. As Crypto Economy reported, Ripple has recently announced a partnership with Qatar National Bank (QNB) with a focus on cross-border payments for Qatar citizens. Ripple also established a regional headquarters in Dubai in 2020 to support its customers. In the previous week, Ripple announced a parthership with Al Ansari Exchange, the UAE-based foreign exchange, to provide remittance service from UAE to Malaysia.

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Ripple Collabs With Pyypl to Expand ODL Services in MENA Region

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  • Ripple partners with Pyypl to expand ODL services in the MENA region.
  • Through this ODL synergy, users will enjoy instant and cheap remittance services.
  • The United Arab Emirates (UAE) will be the first to access this.

Ripple announced that it is now in a fantastic partnership with blockchain-based fintech company Pyypl to continue expanding On-Demand Liquidity services particularly, in the Middle East and North Africa (MENA) region.

Moreover, with this partnership release, Ripple and Pyypl will work hand-in-hand to provide instant and low-cost remittances services. Based on the report, among the other MENA regions, the United Arab Emirates (UAE) will be the first to experience the ODL services.

Notably, this fintech innovation by Ripple aims to make remittance services fast and easy in terms of the to-and-fro of transactions in the MENA area. Of note, as part of the payment flow, “XRP will not be held mainly in the UAE.” Also, all the transactions under this ODL synergy in the country will not involve AED —  the UAE native currency.

By banking the unbanked, Pyypl will meet its long-term goal of providing digital payments for the underserved smartphone users in the MENA area. Best of all, Pyypl will also use Ripple’s ODL to remove high-cost pre-funded accounts needed in the traditional cross-border payments.

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Pyypl’s Co-Founder and CEO Antti Arponen said,

unlocking these previously trapped funds can help better grow and scale the business.

To cut a long story short, this announcement carries Ripple’s ever-growing presence and momentum ahead in the Middle East and North Africa.

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Warrant Buffet backs RippleNet’s Nubank while SEC vs Ripple case drags on

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  • Warren Buffet’s conglomerate Berkshire Hathaway has invested $500 million in Brazilian digital bank Nubank, a member of RippleNet.
  • The SEC v. Ripple case drags on as both disagree on the nature of documents.
  • Ripple has argued that the SEC has not articulated a link between the extra documents in its decision-making.

SEC v. Ripple proceedings continue as the court concedes SEC’s extension request and pushes the expert discovery deadline to January 14. There are several complications in the case, and the American regulator did not object to filing exhibits being filed under seal. 

Berkshire Hathaway invests in RippleNet member bank

Warren Buffet’s conglomerate firm Berkshire Hathaway poured in a $500 million investment in Brazilian digital bank Nubank. The Latin American NEO bank is the largest financial technology bank in the region. It is a member of RippleNet and has engineering offices in Berlin, Argentina and Mexico City.

The bank recently announced the investment. Nubank’s partnership with RippleNet was revealed nearly around the same time when Buffett’s Berkshire Hathaway made the $500 million investment. 

In Ripple’s defense against the accusations made by the Securities & Exchange Commission (SEC), the firm has claimed that the SEC failed to “articulate” a link between the three extra documents (requested by Ripple) and its decision-making process. 

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Ripple’s October 22 filing reiterates that the documents are highly relevant to the defense. Further, Judge Netburn has ordered the SEC to respond to Ripple’s interrogatories and identify the terms of the “investment contract” from XRP sales. 

The order reads:

Accordingly, Defendants’ motion regarding Ripple Interrogatory No. 2 is GRANTED, and the SEC must supplement its response to Interrogatory No. 2 to identify any specific contractual terms and not just implicit and explicit promises as previously identified.

Mike Novogratz, the founder and CEO of Galaxy Digital, has argued that community resilience in the SEC v. Ripple case has led XRP’s price to multiply three times despite the ongoing lawsuit. 

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Novogratz called XRP 

a diversified financial services and investment management innovator in the digital asset, cryptocurrency and blockchain technology sector.

FXStreet analysts have evaluated the XRP price trend and predicted that the altcoin’s price will likely hit $1.50. 

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