SEC v. Ripple: SEC Finally Responds to Ripple Letters of Supplemental Authority

The SEC finally responds.

The United States Securities and Exchange Commission (SEC), in a letter to Judge Analisa Torres dated yesterday, offered its response to recent letters filed by Ripple, citing recent court rulings to offer supplemental authority to its fair notice defense.

As is usually the case, Attorney James K. Filan, a former Federal prosecutor who has closely followed the case, was on hand to share the letter on Twitter.

#XRPCommunity #SECGov v. #Ripple #XRP The SEC has filed its response to the Ripple Defendants’ Letters regarding Supplemental Authority from the Bittner and Voyager cases. pic.twitter.com/zVbPGbmMq0

— James K. Filan ???? (@FilanLaw) March 23, 2023

In its response, the SEC argues that the decision of two justices to depend on the rule of lenity in their opinion in Bittner v. U.S. does not apply to Ripple’s fair notice defense. Firstly, the commission points out that the rule of lenity only applies to criminal suits, whereas the Ripple case is civil. In addition, it notes that the rule of lenity does not absolve defendants of liability. Furthermore, it asserts that even if the rule of lenity applied to civil cases, the courts have never found that the definition of the term “investment contract” is vague.

Recall that Ripple had cited the recent Supreme Court ruling in Bittner v. U.S. in its first letter of supplement authority, where two justices in the majority depended on the rule of lenity in forming their opinion. For context, the rule of lenity states that where the law is unclear, rulings should be given to best favor the defendants. 

Responding to Ripple’s latest letter, which cites Judge Michael E. Wiles’ recent decision to overrule the SEC’s objection to Binance.US’s acquisition of Voyager’s assets, the SEC states that the judge’s remarks referred only to the circumstances of the bankruptcy case. According to the SEC, the judge never claimed that the agency had failed to give sufficient guidance to market participants in general.

“Defendants shamelessly mischaracterize the Voyager bankruptcy court’s statements and pluck choice phrases out of context in a misguided attempt to boost their unavailing ‘fair notice’ defense,” the SEC’s letter read, as highlighted by FOX Business journalist Eleanor Terrett.

“Defendants shamelessly mischaracterize the Voyager bankruptcy court's statements and pluck choice phrases out of context in a misguided attempt to boost their unavailing "fair notice" defense.” https://t.co/V6votP0UVB

— Eleanor Terrett (@EleanorTerrett) March 23, 2023

Unsurprisingly, several members of the XRP community have weighed in on the SEC’s response. For example, Attorney Jeremy Hogan concedes that the regulator made some valid points about the Bittner case but asserts that it is laughable that the SEC claims that Judge Wiles did not state that the crypto market is faced with regulatory uncertainty.

I think these are two cases that are bad for the SEC and this reply negates the Bittner decision a little but doesn't take away much bite from the Voyage judge's ruling.

But it's all FND stuff..

— Jeremy Hogan (@attorneyjeremy1) March 23, 2023

Recall that in his decision, Judge Wiles wrote:

“Regulators themselves cannot seem to agree as to whether cryptocurrencies are commodities that may be subject to regulation by the CFTC, or whether they are securities… subject to securities laws, or neither, or even on what criteria should be applied in making the decision … If the current regulatory environment can be characterized as uncertain, the future regulatory environment can only be characterized, in my mind, as virtually unknowable.“

Meanwhile, another thing that has caught the attention of the XRP community is the SEC’s specific reference to direct Ripple sales to public investors alone when highlighting Ripple’s securities law violation and the contention in the case. It is worth noting that in previous filings, the regulator had argued that all XRP sales, including secondary market sales, represent unregistered security offerings. 

Dizier Capital founder Yassin Mobarak asserted that it was a sign that the regulator was yielding its stance of XRP itself being a security. 

The more the SEC is put under pressure, the more they back away from the untenable position that XRP itself is a security. Now they explicitly say Ripple sales of XRP is a violation of section 5 and don't talk about the native status of XRP.

Progress!

XRP as a token is NOT a… https://t.co/TDgLqLYnww

— Yassin Mobarak (@Dizer_YM) March 23, 2023

As highlighted in previous reports, the legal battle between the market regulator and the blockchain payments firm over whether or not XRP is an unregistered security and whether Ripple XRP sales to fund its business breached securities law has spanned over two years and now awaits a court decision.