The drawn-out litigation between the United States Securities and Exchange Commission (SEC) and the distributed ledger technology company, Ripple, continues to see new developments.
The SEC has filed a letter asking the court to throw out XRP holders’ amici status.
SEC’s Seeks To Bar Token Holders’ Views
Defense lawyer James K. Filan took to Twitter earlier today to share a heavily redacted letter submitted by the SEC. In the letter, the regulator requested U.S. District Judge Analisa Torres to rescind the amici status granted to XRP token holders and restrict attorney John E. Deaton from further participation in the legal battle.
The SEC noted that last October, the judge determined that token holders could participate as “amicus curiae” — a party that is not involved in the litigation but is permitted by the court to advise or provide information.
A group of XRP purchasers led by attorney John Deaton filed a motion to intervene in the case in March 2021. Although their bid to join the case as defendants and back Ripple was denied by the judge last October, they were able to achieve amicus status.
According to the SEC, Deaton “has repeatedly tried to insert himself into this litigation including by seeking a writ of mandamus in another court on his own behalf, ” requested the judge in May to file an amicus brief regarding the opinions of the agency’s expert Patrick B. Doody.
The SEC gave several reasons why the movants’ proposed brief should be rejected. First, the agency claimed that the evidence the motion aims to provide regarding whether XRP has utility does not advance the theory that it is part of an investment contract and thus sold as a security.
The securities watchdog further highlighted that Daubert motions, a kind of motion that seeks to exclude expert testimony, are not “dispositive motions.” Moreover, the SEC believes the amicus brief would simply duplicate the defendants’ efforts.
The SEC wants the court to withdraw the XRP holders’ amici status and bar Deaton from making additional filings or participating in the Ripple case.
Responding to the SEC’s latest filing, Deaton contended that the regulatory agency made the same “nonsense argument” to Magistrate Sarah Netburn. Per the SEC’s thesis, every person selling XRP has breached the Section 5 rule of the securities laws. Notably, exemptions only apply if XRP is a security.
Deaton added that any individual with an intention to sell XRP tokens even years from now could be deemed an “issuer.” This explains why crypto exchanges would not relist XRP if it is classified as a security. “This is a sum zero game,” he summarized.
SEC V. Ripple: A Quick Primer
In December 2020, the SEC dropped a bomb in the cryptosphere by suing one of its most recognized firms, Ripple, and its two top executives, Brad Garlinghouse and Chris Larsen.
The commission alleged that the firm raised over $1.3 billion via “an unregistered, ongoing digital asset securities offering.” In its defense, however, Ripple has maintained that its cross-border payments token, XRP, is not a security.
The outcome of the SEC’s absurd lawsuit against Ripple could have profound implications for the whole crypto sector. For the commission, losing the suit could mean serious complications in pursuing other cryptocurrency projects under the same allegations of selling unregistered securities in the future. It could also greatly affect the regulator’s current efforts to bring the industry under its purview by making it extra challenging to categorize a wider range of crypto assets as securities.