- The SEC is seeking to strengthen its case against Ripple by demanding access to the company’s financial records.
- The outcome of the legal battle between Ripple and the SEC could have far-reaching implications for the industry.
- The regulator’s decision to withdraw its lawsuit against CEOs suggests that the agency may want to negotiate a settlement.
Crypto firm Ripple is still in a legal battle with the United States Securities and Exchange Commission (SEC).
In a recent turn of events, the SEC submitted a request to the US District Court for the Southern District of New York.
SEC Seeks Ripple’s Financial Records to Strengthen Lawsuit
The request is aimed at making Ripple disclose comprehensive financial records for 2022 and 2023. This step is a continuation of the SEC’s enforcement actions against Ripple, which started in December 2020.
In a legal maneuver dated January 11, the SEC filed a motion targeting Ripple’s financial statements and any contracts pertaining to Institutional Sales after the initial complaint. This action follows a key ruling in July 2023, which classified XRP tokens as securities when sold to institutional investors. This classification is pivotal for the SEC’s lawsuit, as they contend that access to these documents is essential for Judge Torres to make well-informed rulings on potential injunctions and civil penalties against Ripple.
The SEC’s filing emphasized the critical role these documents play in determining the appropriate legal actions to be taken. This includes considerations about imposing injunctions on Ripple and calculating the extent of any civil penalties. The SEC’s request could well be a tactical step to fortify its stance in the ongoing legal dispute with Ripple.
SEC Targets $770 Million from XRP Sales to Institutional Investors
The recent filing focused on XRP sales to institutional investors. Both Ripple and the SEC must complete discovery related to remedies by February 12. After the submission of remedy-related briefs and a reply brief from the SEC, Judge Analisa Torres will determine the appropriate penalty for Ripple’s sale of XRP to US institutional investors.
The SEC is targeting the $770 million generated from XRP sales to institutions. The statements requested will give the SEC insight into the proceeds and expenses associated with these sales.
However, US case law could potentially reduce the $770 million derived from these sales. In Morrison v. NAB , the US Supreme Court established the SEC’s jurisdiction was limited to sales within the United States. Ripple plans to use this to show it sold to American institutional investors.
Furthermore, in Liu v. SEC , the Supreme Court ruled any disgorgement award must not exceed the wrongdoer’s net profits and should be directed to victims. This precedent allows Ripple to argue for the deduction of expenses related to the sales of XRP to US. institutional investors from the total proceeds.
Both the SEC and Ripple will present their arguments in the upcoming remedy-related briefs. According to the court’s schedule:
- The SEC must submit its remedy-related brief by March 19.
- Ripple must submit its remedy-related brief by April 12.
- The SEC will then have the opportunity to submit any reply brief by April 19
This stage is crucial. It will influence the final outcome of the case and could set a precedent for cryptocurrency regulation and enforcement.
On Thursday, Ripple formally responded to the SEC’s Motion to Compel by filing for an extension. Ripple requested an additional two days, extending their deadline to January 19, to provide a comprehensive response to the SEC.
XRP-Spot ETFs: A Future Possibility
As discussion and speculation around XRP spot ETFs extended into Thursday, Valkyrie’s Chief Investment Officer Steve McClurg commented on the recent approval of BTC spot ETFs and its implications for the broader crypto-spot ETF market.
McClurg highlighted that the immediate market attention is likely to center on Ethereum (ETH), but he also acknowledged the potential role of XRP in the evolving landscape of crypto-spot ETFs. He said :
“You notice that Grayscale added Ripple to one of their trusts that is publicly traded, so it wouldn’t surprise me if I saw Ripple or Ethereum spot ETFs out there.”
Grayscale has incorporated XRP into its Digital Large Cap Fund (GDLC), broadening the scope of its investment portfolio within the digital asset space.
Legal Tussle Continues
The legal confrontation between Ripple and the SEC began in December 2020 after the commission initiated a lawsuit against the company, alongside its CEO Brad Garlinghouse and executive chair Chris Larsen. The SEC alleged they were involved in raising funds through the sale of unregistered securities. In a twist, in October 2023 the SEC withdrew its lawsuit against Garlinghouse and Larsen, although it continued its legal proceedings against Ripple.
This lawsuit is a part of a larger regulatory crackdown by the SEC on cryptocurrency, including major exchanges like Coinbase and Binance. The commission’s approach has drawn criticism from figures within the industry. Ripple’s Chief Legal Officer, Stuart Alderoty, has been particularly vocal. He described the SEC as an “out of control regulator” in reference to its handling of cryptocurrency regulation.
The upcoming trial, scheduled to begin in April, is a pivotal moment for the cryptocurrency industry. The outcome is expected to significantly influence the sector, as the SEC’s enforcement actions are a key indicator of the regulatory climate for digital assets in the United States. Consequently, the Ripple case is under intense scrutiny from both industry stakeholders and investors.
