The U.S. Securities and Exchange Commission and Ripple Labs are again at odds with one another regarding the motion filed by XRP holders to join the SEC v. Ripple lawsuit as a third-party defendant.
According to a new legal filing, the SEC is seeking to block the motion to intervene filed by six XRP investors — Jordan Deaton, James Lamonte, Tyler Lamonte, Mya Lamonte, Mitchell McKenna and Kristiana Warner — collectively referred to as “Movants” — on behalf of XRP holders.
SEC opposes XRP holders’ intervention
“Movants should not be permitted to broaden the scope of the SEC’s claims by intervening in this action in any capacity,” wrote the SEC in a memorandum of law. “Supreme Court precedent dictates that this type of interference with government enforcement actions is constitutionally and statutorily barred, as it intrudes on Executive Branch prosecutorial discretion.”
Noting that the SEC’s enforcement action “does not charge transactions between individuals in the secondary market as violations of Section 5,” the SEC argued that the XRP holders lacked a clear interest in the case. XRP holders’ arguments “simply recycle Defendants’ arguments, the SEC wrote. “Nor can Movants show that their interests (if any) are not adequately protected by Defendants given that Movants’ objectives are the same as Defendants.”
The SEC asserted that allowing the movants to intervene would require allowing other XRP holders to intervene, which would “sow chaos” in the lawsuit, and will “hopelessly delay this action, require additional judicial resources, and frustrate the role with which Congress entrusted the SEC: to enforce the federal securities laws.”
Ripple supports XRP holders’ participation
In contrast, the defendants — Ripple, its CEO Brad Garlinghouse and executive chairman Chris Larsen — have expressed support for the participation of XRP holders in the lawsuit.
“As independent holders, developers, and users of XRP, with no relationship to Defendants, they have strong and distinct interests in the regulatory status of XRP,” wrote their attorneys, which include former SEC chair Mary Jo White, in their joint response to the motion to intervene filed by XRP holders.
“The SEC’s mere filing of its Complaint caused an immediate drop of $15 billion in the value of XRP held by Movants and other individuals and businesses unrelated to Ripple, and has sharply decreased the liquidity of XRP in U.S. markets,” the defense attorneys wrote. “The impact of the Court’s final decision will likely be greater.”
“Movants are innocent retail holders with no connection to Ripple who have already felt consequences from the SEC’s ill-advised jurisdictional overreach,” the attorneys wrote. “Their desire to be heard is understandable and legitimate.”
The attorneys argued that neither the SEC nor Ripple represented the XRP holders in the litigation. “The SEC — despite its claims to protect them — is acting against their interests and grossly misrepresenting the circumstances of their purchase and use of XRP,” Ripple’s attorneys wrote. The defendants’ focus on whether XRP is a security when Ripple offers or sells it also differs from that of XRP holders who would be more concerned about the present day status of XRP.
“Movants can, and should be permitted to, speak for themselves — and in doing so will shed light on the interests of many other people and businesses that stand to lose existing resources and future opportunities if the SEC’s overreach succeeds,” the defense attorneys wrote.
See related article: 12,600 XRP holders demand their day in court in SEC v. Ripple lawsuit
The SEC filed a lawsuit against Ripple in December 2020, alleging that its sale of XRP was an unregistered securities offering worth over US$1.38 billion. The SEC also named Ripple’s executive chairman Chris Larsen and CEO Brad Garlinghouse as co-defendants for allegedly aiding and abetting Ripple’s violations and making US$600 million in personal profits from their unregistered sales of XRP.
At the heart of the lawsuit is whether transactions involving XRP constitute “investment contracts” based on the Howey test, and therefore securities subject to registration under Section 5 of the Securities Act of 1933.
The price of XRP, which was the third-largest cryptocurrency in the world by market value, plummeted by more than 60% after the SEC filed the lawsuit against Ripple — which in turn caused U.S. cryptocurrency exchanges to delist XRP. But XRP has remained popular in Asia, especially Japan. XRP is currently trading at US$1.44 as of publishing time, an increase of over 500% since the start of 2021, and is ranked fourth by market value after Bitcoin, Ether and Binance Coin.
See related article: SEC seeks to knock out Ripple defense, says no duty to warn over XRP
Battles over discovery continue
The lawsuit is currently in its discovery phase, with each side trying to obtain more information from the other side and limit what information must be shared.
The SEC is seeking to bar the defendants from accessing the SEC’s internal communications, according to its letter to U.S. Magistrate Judge Sarah Netburn on May 3. Attorneys for the defendants, on the other hand, are arguing that the SEC’s internal communications are relevant.
The SEC says it has already produced more than 16,000 documents related to communications on XRP, Bitcoin and Ether to Ripple as part of discovery, and expects to provide thousands more.
Separately, defense attorneys for Garlinghouse and Larsen have filed a joint letter opposing the SEC’s request to file a single 60-page combined brief in response to their individual motions to dismiss the SEC’s lawsuit against them.
See related article: Ripple executives file to dismiss SEC lawsuit as XRP prices soar
“The SEC should not be permitted to use a consolidated opposition to further conflate the relevant allegations against each of the Individual Defendants,” the defense attorneys wrote in their letter. “Separate opposition briefs will force the SEC to address the specific arguments raised by each Individual Defendant, enable Individual Defendants to more squarely address the SEC’s opposition arguments against them on reply, and ultimately enable the Court to clearly see the parties’ arguments as to each Individual Defendant.”
See related article: XRP prices steady after court hearing, Ripple releases $1.6 billion XRP