In December 2020, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple and its two senior executives for selling over $1.3 billion of their cryptocurrency XRP without registering it as a security or seeking an exemption. Both the SEC and Ripple have said they have no intention of settling the case and plan to take the matter to trial. If Ripple wins the case, it will set a major legal precedent for future litigation. Needless to say, the cryptocurrency community is watching the case with great interest.
The latest development in this case highlights the approach Ripple plans to take in mounting their defense. Chris Larson, Ripple’s executive chairman, has just filed a legal motion requesting the case against him to be dismissed. The letter sent to the U.S. District Court for the Southern District of New York states that the SEC’s amended complaint “still fails to state a claim against Mr. Larsen.”
In their complaint, the SEC primarily focuses on their belief that Larsen “knowingly or recklessly provided substantial assistance to another person in violation of [Section 5]” of the Securities Act 1933. Yet, Larsen’s attorneys state that the SEC failed to demonstrate that Larsen knew that XRP were securities and that Ripple’s actions were considered inappropriate. As evidence, his attorneys mention that the Justice Department and FinCEN considered and regulated XRP as a virtual currency, which is the complete opposite of a security.
According to the letter, “The SEC’s own allegations are not only deficient but affirmatively show it cannot meet this standard.” It continues, “At a minimum, the SEC must allege that it was ‘so obvious’ that XRP transactions were securities and Ripple’s conduct was improper that Mr. Larsen ‘must have been aware of it.’”
Larsen’s attorneys also point out that the agency fails to show Larsen had offered “substantial assistance” to Ripple in the sale of XRP. It further argues that the SEC fails to show the XRP sales were made within the U.S. and its jurisdiction. Regarding jurisdiction, the letter states, “This deficiency is fatal to the Section 5 claim against Mr. Larsen.” It continues, “To plead a Section 5 violation, the SEC must adequately allege that each sale occurred within the territorial reach of Section 5.”
Lastly, the letter states that the agency’s claim for monetary relief is no longer valid due to the time that has elapsed. The specific time window under Section 5 for the agency to pursue a claim is defined and limited in scope. As the letter notes, “Because the SEC has alleged that the sales of XRP over a multi-year period constituted only one offer … the statute of limitations began to run in 2013 and expired in 2018.”
The points made in this letter are valid, though courts often collude with agencies against defendants, so the outcome is still far from certain. The fact that jurisdiction was mentioned highlights the importance of operating in a jurisdiction-less space especially with regard to crypto.
As a Private Non-Statutory Trust and a Secured Party Creditor, META 1 Coin Trust operates globally beyond any specific Federal or State boundaries. META 1 Coin is a private digital token that is neither a security nor a currency, though it functions as a replacement for sovereign currency. Nevertheless, we remain hopeful for a positive ruling on the Ripple case as it will establish an important precedent that could potentially reduce persecution for future crypto projects.