In a legal letter to Judge Analisa Torres of the US District Court for the Southern District of New York, filed on March 9, the US Securities and Exchange Commission asked the court to overturn the “fair notice” of Ripple’s defense and reject upcoming motions by its executives to dismiss the SEC’s claim. U.Today reported him.
SEC lawyer Jorge Tenreiro claims the blockchain company is trying to “avoid responsibility” for its unregistered XRP offering by shifting the agency’s blame.
Ripple said the plaintiff did not provide fair notice that its sales may be illegal, citing “lack of due process” in its response to the first amended lawsuit. He also claims that the SEC held meetings with exchanges and did not alert them to XRP’s regulated status.
In turn, the regulator claims that the protection of Ripple is “illegitimate from a legal point of view,” arguing that during a closed investigation, the commission is not obliged to warn industry participants about such violations:
“Rather than acknowledging its obligation to follow the law, Ripple instead argues that SEC staff have a duty to affirmatively warn industry participants of violations by other participants – even if staff are in the process of conducting a closed investigation – no such requirement exists in our legal system. “– said in a letter to the SEC.
“The SEC alleges XRP is a security and Ripple, Brad Garlinghouse, and Chris Larsen sold unregistered securities. Ripple lawyers are firing back, saying they didn’t hold an ICO. Owning XRP doesn’t imply obligations of Ripple to share revenue and profits with coin holders.”- says Bohdan Prylepa, CTO of Prof-it Blockchain Ltd and COO in Bitcoin Ultimatum “They also rope in Ethereum and the Ethereum Foundation. I’m closely watching this even though the case may lag for months, if not years. However, the regulatory clarity that comes after that, even if it’s settled out of court, will be massive for Ripple—as a for-profit company, and XRP—the digital asset.” – he added
SEC calls XRP “digital securities.”
According to the SEC, the Ripple case is a “direct application” of the Howie test, a test created by the US Supreme Court to determine whether certain transactions qualify as securities.
“Basically, Ripple’s argument is that the term “investment contract,” defined by decades of case law, is “vaguely invalid.” However, this argument was repeatedly dismissed by the courts. The Second District has rejected this argument at least twice, and at least two District Courts in that District have specifically rejected the argument in the context of Howey’s application to digital asset securities,” the SEC said.
He adds that the company “capitalized” its business by selling “digital securities”:
“Here, Ripple has essentially capitalized its entire business by selling digital asset securities to the public while offering investors a profitable opportunity based on Ripple’s future efforts. However, Ripple is now surprised that the SEC has filed a lawsuit for enforcement,” the commission said in a letter.
While the Financial Crimes Enforcement Network (FinCEN) called XRP a “virtual currency,” the SEC claims the term simply distinguishes it from traditional currencies:
“Notably, in its amended response, Ripple does not claim that anyone – government, legal advisor or anyone else – told Ripple that the agreement with FinCEN means that Ripple is exempted from complying with securities laws or any other applicable legislation, as implied in its arguments Ripple, “- says the SEC.
Moreover, the commission argues that a regulatory regime alone cannot prevent the application of an overlapping regulatory regime, and that if a digital asset is recognized as a “virtual currency”, this does not mean that it will not be regulated as a security if in fact it performs its functions.