- The US SEC writes a letter to the District Judge requesting her opinion on a case similar to Ripple Labs.
- Ripple Labs argues that the SEC did not provide a fair notice before being sued.
- John Deaton suggests that the “fair notice defence” only works if Ripple’s token is regarded as a token.
Ripple Labs has been in a legal battle with the US SEC (Securities and Exchange Commission) since 2020, when the company was sued for holding an initial public offering (IPO) of XRP (Ripple’s token), which was an unregistered security.
In a letter to Analisa Torres—the US District Judge handling the case between SEC and Ripple Labs—the SEC they have asked that the judge share her opinion on a topic similar to the one at hand, which the SEC was victorious in the case against Commonwealth Equity Services, an investment advisory firm.
According to the case, a longstanding court precedent might serve as a fair notice for its Defendants.
“…holding that longstanding Supreme Court precedent can provide fair notice is identical to the SEC’s position in this case; that Howey progeny provided Defendants with sufficient fair notice to defeat their constitutional defense,” the letter reads.
The SEC posited that this longstanding court precedent which gave birth to the Howey test—a method used in deciding what constitutes a security—provides the technology firm with fair notice regarding what a security is, according to the court judgment of the Commonwealth case.
The SEC further stated that this precedent with Commonwealth gives the court grounds to reject Ripple Labs’ fair notice defense.
“Accordingly, Commonwealth provides additional authority for rejecting Defendants’ fair notice defense and granting the SEC’s motion for summary judgment.”
In its ongoing battle with the US SEC, Ripple Labs believed that the SEC suing the company for violating securities fraud without fair notice was its crucial defense. In contrast, the recent revisit of the Commonwealth case makes such a defense redundant.
SEC Lawsuit Against Ripple Labs
Ripple Labs was founded in 2012 by Chris Larsen and Jed McCaleb to provide financial institutions with low-cost and fast cross-border money transactions, creating its network, which allowed for trades to be made in the form of its native cryptocurrency (XRP).
As time grew, Ripple Labs evolved beyond its earlier stated jurisdiction and began raising funds by selling its XRP token in unregistered security offerings to investors worldwide. The SEC alleged that the co-founders of Ripple had failed to register their XRP offers and, in so, violated the federal securities laws.
The Crypto Community Weighs In On The Case
John Deaton, the founder of Crypto-Law and managing partner of the Deaton Law firm, has previously weighed in on the US SEC legal battle with Ripple Labs, announcing on Twitter that contrary to popular belief, the fair notice defense was not what the people thought it was.
“The FND only comes into play if the judge decides that #XRP was a security…,” he claimed.
Conclusion
In a legal battle against the US Securities and Exchange Commission, Ripple Labs’ key pole fence, which was its fair notice, has come to be weakened in a recent court letter that the SEC filed to the residing court judge.
