Judge Annalisa Torres of the Southern District of New York has rejected the Securities and Exchange Commission’s motion to attack Ripple’s fair notice defense.
The SEC filed this motion under the federal Rule of Civil Procedure 12(f), which states,
“The Court may strike by reason of inadequate defense or any pointless, immaterial, unreasonable, or reprehensible matter. The Court may act:
(1) himself; or
(2) On a motion made by either party, either before a reply to the plea, or, if the response is not permitted, within 21 days.
Court dismisses SEC’s proposal, citing “legally insufficient defense”
The SEC filed a motion to remove Ripple’s fair notice defense in April 2021, intended for the judge to issue a search order to the SEC to prove that the SEC has given Ripple fair notice that the distribution of XRP – From 2013 – would be prohibited under securities law.
The SEC prompted the court to strike down Ripple’s fair defense proposal because it was a “legally inadequate defense on which Ripple cannot prevail in a matter of law,” adding some rules to strengthen its argument. . The court observed that these rules failed to mention the laws of the cases where the motion was struck at the stage of the petition. Petitions are formal documents presented in court, which state the position of each party in a lawsuit. The court also held that the SEC positioned itself to stall the proceedings before the trial, increasing the cost, time and complexity of the case.
The court said the SEC failed to convince them that Ripple’s defense of fair notice would amount to unfair bias to the SEC.
The court’s order read: “At this early stage of the case, the court will not conclude that Ripple’s defense is invalid. Accordingly, the SEC’s motion to attack Ripple’s fair notice affirmative defense is rejected.”
What’s happened so far?
After the SEC filed suit against Ripple in December 2020 for allegedly offering $1.3B worth of unregistered securities, in violation of Section 5(a) of the Securities Act of 1933, which “ sale or distribution after sale”. “Unregistered securities” and 5(c), which pertains to the requirement to be registered before the offering of any security.
The CEO, Brad Garlinghouse, and co-founder, Christian Larsson, filed letters to judge Sarah Netburn to dismiss the lawsuit.
The SEC filed a motion to defer the requirement to disclose its internal correspondence on bitcoin, ether and XRP until August 2021, fearing that such disclosure would reveal its views on crypto. He requested an extension of 60 days for fact-finding, which was granted.
Ripple then tried to question William Hinman, a former director of the SEC’s Corporate Finance Department, who made objectionable statements about Ethereum, saying he did not consider Ethereum a security. The SEC claimed this was Hinman’s opinion, not the agency’s, but nonetheless, Ripple expected to subject Hinman to a statement where he could apply his argument about Ethereum to XRP. The SEC filed a motion to withhold the statement, which was denied by Judge Sarah Netburn.
The case is expected to come up for hearing soon, and Garlinhouse said On Twitter, “And while we would have liked to have now ended the cases against Chris and me, the SEC now has to prove our claims. We are confident that they will all eventually be dismissed.”
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