In a recent development in the ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs, Ripple’s CEO, Brad Garlinghouse, has expressed his frustration and vehemently countered the SEC’s allegations. The core of the dispute revolves around the SEC’s claim that Ripple and its senior executives, including Garlinghouse and Ripple Co-Founder and Executive Chairman Chris Larsen, unlawfully offered and sold securities, violating the Securities Act of 1933.
The lawsuit, initiated in December 2020, reached a significant milestone on July 13, 2023, when Hon. Analisa Torres, a district judge at the United States District Court for the Southern District of New York, delivered her ruling. After reviewing the case and the summary judgment motions submitted by both parties, the court partially granted and denied motions from both sides. Notably, the court sided with Ripple on several fronts, including the Programmatic Sales, the Other Distributions, and the sales made by both Larsen and Garlinghouse. However, the court denied Ripple’s motion concerning the Institutional Sales.
Judge Torres specifically highlighted that the XRP token itself does not embody the requirements of an investment contract. Furthermore, she noted that the secondary market sales of XRP could not be classified as offers or sales of investment contracts, especially when the payment for these XRP sales never traced back to Ripple.
Despite the court’s ruling, the SEC, on August 9, 2023, sought an interlocutory appeal, a mechanism that allows appellate courts to review specific aspects of a case before its conclusion. According to a report by CoinDesk, the SEC aims to challenge the court’s decision that “defendants’ ‘programmatic’ offers and sales to XRP buyers over crypto asset trading platforms and Ripple’s ‘other distributions’ in exchange for labor and services did not involve the offer or sale of securities under [the Howey test].”
On 16 August 2023, responding to the SEC’s move, Ripple’s Chief Legal Officer, Stuart Alderoty, tweeted that there were no extraordinary circumstances to justify an appeal before resolving all issues related to all parties involved. Ripple’s legal team and the two executive’s legal team sent separate letters to Judge Torres saying that the three defendants — i.e., Ripple Labs, Brad Garlinghouse, and Chris Larsen — “oppose the SEC’s anticipated motion for leave to file an interlocutory appeal.”
Garlinghouse’s response was more direct and assertive. In a series of tweets, he emphasized that the request for an appeal, even if granted, wouldn’t alter the fact that XRP is not a security. He labeled the SEC’s claims that he and Larsen acted recklessly in believing that XRP is not a security as “utter nonsense.” Garlinghouse also pointed out that the July 13 ruling indicated that the SEC would need to provide substantial evidence at trial regarding their claims against him and Larsen. He expressed confidence in proving the SEC wrong, both factually and legally.
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