Wednesday, August 4

If Ripple’s (XRP) “Fair Disclosure” Defense Succeeds, the SEC Could Be in Big Trouble

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Last December, the SEC filed a lawsuit against Ripple (XRP) Labs for alleged unregistered sale of securities. The company made two important defenses in retaliation. One of these defenses was “fair notice affirmative defense”.

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But the regulator has now moved to refute Ripple’s fair warning defense. As previously reported, the SEC claimed that the defense in question was “legally” unsuccessful. In the SEC letter, Ripple’s entire defense is in Upton v. He claimed it revolved around the SEC lawsuit. Additionally, the agency also claimed that Upton never filed to dismiss violations in an SEC district court case, and that no court had allowed Upton’s defense to refute the SEC’s legal violation charges.

The SEC ultimately sought to separate the Upton case from the ongoing litigation. He argued that a fair denunciation defense could not be applied in this way. Attorney Jerney Hogan said:

“Just because a rule of law has not been applied in a particular situation does not mean you cannot remove it.”

SEC – Kik Interactive Inc. Using his case as a precedent, the SEC continued by emphasizing that Judge Hellerstein “wisely dismissed” the defendants’ Upton defense. Commenting on the possibility of the SEC’s motion being upheld by the court, Hogan said:

“I think there will be a disclaimer here on Ripple’s “fair notice” defense.”

Additionally, it’s worth noting that the SEC has been trying to capitalize on the Kik Interactive case since day one. The firm had an ICO in 2017 and was sued on similar grounds as Ripple. Judge Hellerstein, who didn’t know much about technology at the time, decided that Kik’s crypto sales were illegal securities sales. The lawyer continued:

“The SEC is trying to make the Ripple case look just like the Kik Interactive case, and Ripple will have to be very careful about it… In a way, it’s a bad case of dealing with non-binding precedent.”

Further explaining why the fair warning defense is important, Hogan claimed that if Ripple wins the fair warning defense, other crypto firms that may be sued in the future will also benefit from it.

“The fair notice defense will be a massive defense against the SEC if it succeeds and Ripple wins.”

It is worth noting here that even if Ripple loses their fair warning defense, they can further appeal the decision. If the appeals court finds that Judge Torres was wrong and Ripple did not give fair notice, things will go badly for the SEC, and this decision will be binding on all future cryptocurrency lawsuits. Hogan concluded his words as follows:

“If this happens, the SEC will not be able to file any more cryptocurrency lawsuits. So the Fair Disclosure defense is the main thing putting pressure on the SEC right now, and pressure is key.”

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