Ripple lawsuit may take an ‘out of the blue’ turn: Ex-SEC Official

Lavina Daryanani

Back in December 2020, US’s apex regulatory agency, the Securities and Exchange Commission, filed a lawsuit against blockchain payment firm Ripple and its executives Brad Garlinghouse and Chris Larsen.

As per the complaint, Ripple raised funds, beginning in 2013, through the sale of its XRP tokens in an “unregistered securities offering” to investors in the US and worldwide. Over the course of 14-months, several landmark hearings have taken place, with a host of back-to-back motions filed by both parties either being granted or denied.

In a recent podcast with Thinking Crypto’s Tony Edward, Joseph Hall, former SEC Managing Executive for Policy and Partner at Davis Polk & Wardwell LLP, opined on the state of the lawsuit, how things have been going on so far and what to expect going forward. Elaborating on his inclusive viewpoint, Hall said,

I think it is too early to know. You know, what we’ve seen over the course of the past year has been a series of discovery disputes, discovery issues. These are, obviously, vitally important to the parties, to the SEC, and to the defendants. But, in terms of trying to draw out the broader lessons of the case, I think these are all little skirmishes. The judge hasn’t yet begun to rule on the substance of what the SEC is saying or the substance of what Ripple is saying, and to me, that’s what the interest is going to be.

XRP community to have no bearing on the case?

Since the beginning of the lawsuit, members from the XRP community have outrightly expressed their chagrin and concerns. The same, as per the former SEC official, is “pretty compelling” and could matter to the judge, but might not necessarily act as the trump card. Hall said,

I don’t think the anger of the XRP community is going to have a sort of deciding role in what the judge determines in terms of whether or not XRP is a security.

Over the months, the XRP Army has sort of matured. They’ve started deep-diving into the legal intricacies to understand the nuances associated with the case. In effect, XRP’s price pendulum has started oscillating to the tune of the case’s music and collective community sentiment.

Post a recent positive development, for instance, when the broader market was sunk in blood, XRP’s price managed to appreciate by more than 22% in a single day.

Where the lawsuit stands right now

Per the latest verdict, the court granted Ripple the authority to unseal two crucial documents. According to the blockchain firm, the said records would shed light on the SEC’s classification of XRP back in 2012. 

In fact, as per popular attorney James Filan, both the unsealed memos are “favorable” to Ripple and the individual defendants – Brad Garlinghouse and Chris Larsen. Elaborating on the same in a Twitter thread, he said,

It seems to me that Ripple was being very proactive, which is very important. There certainly is nothing in these memos that suggests that Ripple was being reckless or ignored any substantial risks. In fact, the memos suggest the opposite – that Ripple was being careful.

Additionally, on February 17, Ladan Stewart, Senior Trial Counsel at Division of Enforcement at the SEC, filed a motion for partial reconsideration and clarification of the Court’s 13 January order, with respect to Hinman’s speech, to Judge Sarah Netburn. As per Jeremy Hogan, filing the said motion was one of the SEC’s biggest blunders and could backfire on the regulatory agency. In a recent video, the attorney opined,

The entire argument completely backtracks on what the SEC has been saying for almost the last year. What does that mean for a legal strategy standpoint? Look at what the SEC has just done. It’s not good, because it opens up the possibility that the SEC could lose both its pawn, and its bishop…

Is the settlement door still open?

Well, as per the current standings, it does seem like the defendants have an upper hand. However, it should be noted that it will take time for the case to advance from here on and momentum can re-swing back in any party’s favor going forward. Stressing on the ‘why’ aspect, Hall said

We’re only in February of this year and I’m hopeful that we’ll see some real substance of action on this case over the course of this year. But again, litigation is inherently slow, and judges move slowly, and even now it’s only the district court phase, and I think almost no matter what happens at the district court level, you can expect to see appeals. So, I wouldn’t be banking on a tight-end resolution of this case over the course of this year.

Hall concluded,

“Settlement is always a possibility that could happen out of the blue, but from an outsider’s perspective which is all I have on it, both sides seem to be pretty dug into it right now.”