- Ripple’s “fair notice” defense is becoming key in the legal battle with the SEC to expose the SEC’s inconsistent views.
- Attorney John E. Deaton’s petition blatantly shows that Ripple should have been “obliged to have psychic powers” to know XRP’s status as a security.
Ripple’s “fair notice” defense is increasingly crystallizing as a central point of contention in the early stages of its litigation with the U.S. Securities and Exchange Commission (SEC). The company argues that it could not reasonably have known that XRP was a security. In its fourth defense, Ripple writes:
Here, due to the lack of clarity and fair notice regarding Defendants obligations under the law, in addition to the lack of clarity and fair notice Plaintiffs interpretation of the law, Ripple lacked fair notice that its conduct was prohibited.
As attorney Jeremy Hogan explained in a new video, it’s all about that defense. If the judge agrees with the SEC and rejects this defense as “improper,” as the U.S. agency urged in one of its recent letters, numerous other arguments by Ripple will be null and void.
For example, it would not matter that FinCEN had already issued a decision in 2015. The “sensation” that the SEC had already been approached by “one or more major crypto exchanges” about the vacant securities status in 2019 would also be null and void. According to Hogan, however, approval of the SEC application is unlikely.
I believe that the defense does not gets stricken but that the judge probably pushes the decision down to summary judgment time, with all the other issues.
Moreover, the SEC’s move shows they are “nervous,” Hogan said. The discovery phase has begun, and Ripple wants the SEC to provide transcripts from conversations with exchanges that were about XRP. The only way the SEC can prevent that is with this motion:
And what this [this]tells me is, not only is the SEC worried about the affirmative defense, they are also worried about what Ripple might find out in discovery. […] this is the beginning of a discovery battle, and it’s apparently the SEC who might have some skeletons in its closet. And in order for Ripple to find out what they are, they are going to get past this motion. […] [These] are the opening volleys of fight over information and secrets. […] Lots of these letters in the coming couple of months will argue over what is discoverable and more importantly what isn’t discoverable. And this is where the case is lost or will be won.
John E. Deaton’s lawsuit exposes SEC’s ambiguity and contradictions
In a similar vein, Roslyn Layton expressed her views in a well-received article on Forbes, which was retweeted by Ripple’s General Counsel Stuart Alderoty. According to Layton’s opinion, the “fair notice” argument is apparently far-fetched, as evidenced by the petition filed by attorney John E. Deaton on behalf of all XRP holders.
"Not only is the future of the U.S. crypto industry at stake, but the arrogance of unrestrained regulators making policy through enforcement is on trial as well."
A must read by Roslyn Layton. https://t.co/e0iia91MMp
— Stuart Alderoty (@s_alderoty) March 11, 2021
As CNF reported, the petition is critical in preparation for a class action lawsuit because it exposes the SEC’s ambivalence and the contradictions in its reasoning. In response to Deaton’s submission, the SEC had to admit the open status of XRP. Layton writes in this regard:
Put two and two together, and the SEC is saying that Ripple and its two top executives had to have reasonable knowledge of something seven years ago that the agency itself wasn’t sure about last Friday. One wonders which part of the 1933 Securities Act the SEC will eventually use to argue that Ripple is obliged to have psychic powers to operate lawfully in the United States.
According to Layton, SEC Chairman-elect Gary Gensler faces a “disastrous mistake” that he must now “sort out”:
The SEC probably didn’t expect the storm that Clayton’s final act has kicked up, and it has exposed the inherent weakness in the decision to sue. It began on January 1, when a group of XRP holders led by Rhode Island attorney John E. Deaton struck back at the agency.
Ripple (XRP) Committed to the Crypto Climate Accord (CCA) To Provide for Sustainability
With cryptocurrency becoming mainstream, to provide for a long-term future together sustainability practices are very important. Major Fintech companies like PayPal, Visa, Tesla, and several others leverage this technology. This in turn has led to increased energy consumption to already unsustainable levels. To break even, the industry has a choice to make. Either continue down the unsustainable path to be doomed or work together and reduce the collective environmental impact.
Decarbonizing public blockchains is about bringing down the carbon footprint. In2020, Ripple partnered with Energy Web (EW) and the Rocky Mountain Institute (RMI) in their efforts to decarbonize public blockchains beginning with the XRP ledger. Further, Ripple has pledged to achieve carbon net-zero by 2030 or sooner.
Ripple is committed to the Crypto Climate Accord (CCA), which is a new initiative organized by EW, RMI, and the Alliance for Innovation Regulation (AIR) to ensure that the cryptocurrency industry is 100% renewable.
Ripple will also be joining more than 20 supporters from different industries and blockchains, which consists of the United Nations, CoinShares, Compass Mining, the XRP Ledger Foundation, and ConsenSys to provide for sustainability and scalability, thus creating value for all.
The cryptocurrency market cap is at $2 trillion, which is twice the previous all-time high that was reached about three months ago, thus underscoring how quickly this industry is growing.
The growth of the cryptocurrency industry comes at a cost. The damages caused by climate change cover for nearly 3% of GDP by 2060. The challenge to sustain global financial prosperity without compromising on the environment is a thing to be considered.
Emissions reduction and renewable energy use are steps to ensure progress in the right direction.
The Paris Climate Accord, fintech, and crypto industry leaders have partnered to set the objectives to ensure sustainability.
Key objectives include: “Enable all of the world’s blockchains to be powered by 100% renewables by the 2025 UNFCCC COP Conference; Develop an open-source accounting standard for measuring emissions from the cryptocurrency industry; Achieve net-zero emissions for the entire crypto industry, including all business operations beyond blockchain and retroactive emissions by 2040.”
Ripple’s journey in ensuring sustainability consists of recognition of financial technologies like blockchain and cryptocurrency to position financial empowerment without compromising on the sustainable future. Thus, providing for the critical years of commitment in the process of cryptocurrency adoption. Reverse engineering the characteristic of the technology after progress has been achieved can be tricking and sustainability will, in turn, have to wait longer. Therefore, Ripple is leading the effort and they feel it is time to solve the problem now.
Ripple is committed to progressing this effort by a strategic partnership with organizations like Rocky Mountain Institute, Energy Web, and AIR, eventually contributing to policy ideas and financing for innovations to help achieve the long-term objectives of Accord.
The attempt is expected to save the global economy an estimated $26 trillion by 2030, contributing to a robust and sustainable global financial system leading to a sustainable world.
SEC v. Ripple – Court orders plaintiff to ‘answer Ripple’s interrogatories’
Within 24 hours of the court approving the Securities and Exchange Commission’s request to postpone the discovery deadline to January 2022, Judge Sarah Netburn has responded to two pending motions in the SEC v. Ripple Labs lawsuit.
One of the motions was from defendants Ripple Labs and Chris Larsen to compel the SEC to supplement its responses to eleven of its interrogatories and two of Larsen’s. Meanwhile, the other motion from the SEC sought a protective order to relieve it of the obligation to respond to 29,947 separate requests for admission, as per the filing.
Judge Netburn has now granted and denied both motions in part.
The judge ordered the SEC to answer Ripple’s interrogatories and identify the specific terms of the “investment contract” from XRP sales. The order added,
“Ripple’s interrogatory is relevant (and precise) and will clarify whether the SEC contends that the terms of any contract identified in response to Ripple’s Interrogatory No. 1 created an expectation of profits by the purchaser of XRP.”
“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.”
The SEC must also respond to whether it contends that “efforts by Ripple were necessary to effect any increase in the price of XRP.” The court granted most of the defendants’ motions to compel answers on interrogatories, except one.
This was the motion from Chris Larsen on when XRPL is fully functional. Judge Netburn denied it without prejudice for being “too vague,” with the parties ordered to confer clarity terms.
Meanwhile, the SEC’s motion for protective orders was also partially granted and denied. The judge granted protection on Defendants’ 28,849 RFAs, noting that “it is hard to view this stunt as anything more than theater.” The order added,
“The motion for a protective order is GRANTED on burden grounds. Having granted the motion to compel a response to Ripple’s Interrogatory No. 2, the protective order is also GRANTED as cumulative and duplicative of another form of admissible evidence.”
As the SEC and Ripple filed their responses, the timeline for the case may extend due to the postponement of the discovery deadline. This deadline was pushed so that the parties could complete the expert depositions and beef up their preparations.
Court Orders SEC to Answer Ripple’s Interrogatories
Ripple, however, has failed to bury the SEC in paperwork, with the judge granting the agency’s motion for a protection order against “unduly burdensome” requests
Magistrate Judge Sarah Netburn has ordered the U.S. Securities and Exchange Commission to answer some of Ripple’s hotly-contested interrogatories, which are meant to determine whether or not the plaintiff’s contentions can be supported by facts.
The agency will have to specify why the company’s XRP sales are investment contracts:
The SEC’s legal theory is not an excuse to avoid responding to Defendants’ factual inquiry. Nor is it a basis to answer a different question than posed.
In addition, the SEC will have to state whether it believes that Ripple’s efforts were key to boosting the price of XRP.
However, Ripple’s interrogatory about whether or not the XRP Ledger was fully functional prior to the start of the securities offering has been denied for being too vague:
The Court agrees that this interrogatory seeks relevant information. But Defendants’ interrogatory is too vague for the reasons identified by the SEC.
Netburn has also granted the SEC’s motion for a protective order, which allows the regulator not to respond to all of Ripple’s “unreasonably burdensome” interrogatories.
The agency claimed that covering all the 29,947 requests would take 104 days without “breaks or sleep.”
Earlier this week, the court also granted the SEC’s motion to extend the expert discovery deadline to Jan. 14, 2022, despite Ripple’s protestations.