Ripple and SEC Engage in Legal Tug-of-War over Financial Records and Contract Sales
Summary:
Southern District Court Judge Sarah Netburn of New York has been roped into the ongoing dispute between Ripple Labs and the U.S. Securities and Exchange Commission (SEC), revolving around Ripple's financial information and sales contracts. The SEC asked for an official order compelling Ripple to share its financial data and institutional sales contracts. Rejecting this, Ripple stated that their actions post-filing the lawsuit as well as their financial status are irrelevant to the case, and they don't plan to argue financial inability for penalty payments. Countering this, the SEC referenced a prior ruling emphasizing the defendant's financial state when determining penalty figures to discourage misconduct.
Judge Sarah Netburn from the Southern District Court in New York is the recent recipient of ongoing written exchanges between Ripple Labs and the U.S. Securities and Exchange Commission (SEC). The core of the dispute revolves around Ripple's financial records and institutional sales contracts, which the SEC seeks in order to strengthen its ongoing regulation efforts. The SEC sent a letter to Judge Netburn on January 11th, requesting an official directive to force Ripple to provide their financial records for 2022 and 2023 as well as their institutional sales contracts since the agency launched a lawsuit against them toward the end of 2020. In July, Judge Analisa Torres ruled preliminarily that XRP (XRP) institutional sales qualify under the Howey test and hence, are securities sales.
Rejecting the SEC's demand, Ripple penned a letter to Judge Netburn on January 19th, arguing that the discovery phase of the legal proceedings concluded in August 2021 and their actions post-lawsuit filing don't hold relevance to the case. Moreover, they argued that their financial status has no bearing on the case, as they have no intentions of pleading financial inability to cover penalties.
On January 23rd, the SEC penned a retort to Ripple, arguing “Ripple did not allege any potential harm in revealing its current financial statements," and quoted a previous ruling that emphasized the relevance of a defendant's financial ability when determining the penalty designed to avert misconduct.
The SEC's letter also referenced Judge Torres, implying the potential for additional discovery procedures. The SEC maintained that Ripple’s financial status and post-complaint conduct are indeed pertinent, as the Securities Act (likely referring to 1933’s) "specifically anticipates injunctions when a violation is on the verge of happening”, and these could help ascertain the probability of repeat violations. Besides, as per the legal definition of a sale, order fulfilment following the complaint could influence the size of the disgorgement.
Published At
1/25/2024 12:30:00 AM
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