A United States district judge has denied the request of XRP holders to intervene in the U.S. Securities and Exchange Commission’s lawsuit against Ripple Labs, but is encouraging them to offer the court information on the case as “friends of the court.”
The XRP holders “may view XRP differently from Defendants and thus may stress different arguments,” wrote Judge Analisa Torres in her Oct. 4 ruling. “If intervention is unavailable, they will provide the Court with a meaningful perspective, and will help ensure ‘complete and plenary presentation of difficult issues so that the [C]ourt may reach a proper decision.’”
In April, Rhode Island-based attorney John Deaton, on behalf of six XRP investors — collectively referred to as “Movants” — filed a motion to intervene in the lawsuit as a third-party defendant, citing their “significant interest in the property at issue” in the SEC’s enforcement action against Ripple for its alleged unregistered securities offering of XRP worth over US$1.38 billion. In the same lawsuit, the SEC also named Ripple’s CEO Brad Garlinghouse and executive chairman Chris Larsen as co-defendants for allegedly aiding and abetting Ripple’s violations.
See related article: Lawyer for 11,000 XRP holders pushing to fight SEC in Ripple lawsuit
XRP holders to assist by briefing legal issues
While Ripple was not opposed to the XRP holders’ attempt to intervene, the SEC was vehemently against it, arguing that it amounted to constitutionally and statutorily barred interference that would “sow chaos” in the lawsuit. Allowing XRP holders to join the lawsuit also would “hopelessly delay this action, require additional judicial resources, and frustrate the role with which Congress entrusted the SEC: to enforce the federal securities laws,” the SEC had asserted.
In her ruling, Torres wrote that Ripple could adequately represent the XRP holders’ interests.
“Movants and Defendants have an identity of interest because they share the identical ultimate objective,” Torres wrote. “Both Movants and Defendants seek the same outcome: a holding that XRP, particularly XRP currently being traded, is not a security.”
The XRP holders will not be allowed to present evidence but “shall be allowed to assist the Court by briefing legal issues relevant to the case as approved in advance by the Court,” Torres added.
At the heart of the SEC’s lawsuit, which was filed last December, is whether transactions involving XRP constitute “investment contracts” and therefore securities subject to registration under Section 5 of the Securities Act of 1933.
The lawsuit is being closely watched by cryptocurrency companies and investors around the world for its potentially far-reaching implications on whether other tokens, too, might be deemed securities in violation of U.S. law. Ripple has argued that it did not receive “fair notice” that the SEC would treat XRP differently from Bitcoin and Ethereum — two cryptocurrencies that former SEC director William Hinman had declared were not securities in a speech in 2018, when he was the head of the SEC’s Division of Corporate Finance.
XRP community celebrate the ruling win
Allowing “friends of the court” — or “amici curiae,” in legal terms — is a common way for courts to receive and consider extra information, offered by a third party, that may be relevant to a case. The responses from the XRP community on social media to the judge’s ruling have generally been positive.
“Please note the language after the last name in the Judge’s Order: and ALL SIMILARLY SITUATED XRP HOLDERS,” tweeted John Deaton, the attorney representing the XRP holders, a day after the ruling. “Amici curiae is all other XRP Holders who agree with our position”
“30,000 #XRPHolders have joined. Doesn’t matter where you live. Your name and contact info will not be shared with anyone. The SEC, IRS or any other agency will not have your name. At some point, a few #XRPHolders could be highlighted during the case, but only with their consent,” said Deaton in a follow-up tweet today. Deaton did not respond to a Forkast.News request for further comment.
James Filan, a defense lawyer and former federal prosecutor who frequently comments on this lawsuit, said in a tweet: “Court gives @JohnEDeaton1 power to brief questions of law on behalf of Individual Movants. This is a HUGE win for the #XRPCommunity because the interests of the Individual Movants and the #XRPCommunity are aligned.”
Ripple’s general counsel Stuart Alderoty also took to Twitter to say: “XRP holders have always said that the SEC’s lawsuit is a direct attack on them. Now it’s official. The Court’s ruling permits John Deaton to share his ‘meaningful perspective’ to help the Court ‘reach a proper decision.’ Yet another important (and positive) development.”
XRP — the sixth-largest cryptocurrency by market value — is currently trading at US$1.08 as of publishing time, up over 16% in the past week.