Ripple’s fair notice defense faces new challenge from the SEC

Ripple, Ripple’s fair notice defense faces new challenge from the SEC
SEC filed a letter of supplemental authority in support of striking down the fair notice defense. Image from creative commons

Key Takeaways:

  • The SEC filed a letter of supplemental authority to support its motion to strike Ripple’s fair notice defense.
  • Ripple accuses SEC of ignoring difference in the ‘procedural posture.’

NEW DELHI (CoinChapter.com) — The latest volley in the ongoing Ripple v. SEC battle comes from the plaintiff’s side.

The Securities and Exchange Commission filed a letter of supplemental authority addressed to Judge Analisa Torres. The letter serves to provide further support to the SEC’s motion to strike Ripple’s fair notice defense.

In detail, the fair notice defense examines if Ripple had reasonable, fair notice from the SEC whether the sale of its native token XRP qualified as a sale of securities.

Also Read: SEC Chair Gensler’s speech raised eyebrows at Ripple.

The letter cites a ruling by a Southern District of Florida court on Jan 21, 2022, that rejected the fair notice defense as a matter of law. In the SEC v. Keener case, the court concluded that the defendant unlawfully failed to register as a securities’ dealer,’ awarding the SEC summary judgment.

In doing so, Keener rejected the same “fair notice” argument Ripple asserts in this case and that the SEC has moved to strike, holding that the defense fails as a matter of law

Excerpt from the SEC’s letter.

What The SEC Says

In the SEC v. Keener lawsuit, the defendant argued the SEC did not give him ‘fair notice’ about his conduct being unlawful. Furthermore, he stated that the SEC’s language is not transparent, leading to several interpretations over the years.

Lastly, the defendant stated that a jury should decide whether the regulator’s interpretation and application of the Exchange Act’s description of a ‘dealer’ were correct.

However, the court awarded the SEC summary judgment.

Defendant had notice that his conduct could be unlawful based upon “the express language of the Exchange Act, decisions from this circuit applying the definition of “dealer” and SEC guidance itself

Excerpt from the judgment in SEC v. Keener case.

Coming back to the Ripple lawsuit, the SEC filed its letter since it considered the case similar to the fair notice argument from Ripple. Therefore, the letter provides more weight to the SEC’s arguments in favor of striking down Ripple’s key defense.

Earlier this month, the SEC had filed another letter of supplemental authority, supporting its motion to strike. In this letter, the plaintiff cites a Dec 20, 2021 judgment on a Northern District of Illinois case that denied the defendant’s motion to dismiss the SEC v. Fife.

Also Read: SEC vs. Ripple: Motion to quash Hinman deposition transcript released.

Interestingly, the defendants in the Illinois case, Fife, also alleged they did not have fair notice from the SEC.

Ripple Replies

Ripple submitted its filing in response to the SEC’s letter. The fintech firm argued the Keener case was different than their own. As such, the procedure in the Keener case does not apply to Ripple’s since the courts are yet to consider Ripple’s ‘factual record.’

Moreover, the firm further accuses the regulator of ignoring that even disputed issues of law are ‘more properly “determinable only after discovery and a hearing on the merits.”‘

The SEC has not identified any controlling authority granting a motion to strike a defense comparable to the one Ripple has asserted here. Without such controlling authority, the SEC’s motion must fail under the Second Circuit’s standards for motions to strike.”

From Ripple’s reply to SEC’s letter of supplemental authority

Ripple is currently invested in its fourth affirmative defense, which argues the lack of fair notice from the SEC.

At the time of writing, XRP was trading at $0.60. down 2.4% on the day.

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