Ripple vs. SEC Update : Can Ripple Defend Against SEC’s Howey Test Allegations?
On Tuesday, January 23, the United States Securities and Exchange Commission (SEC) took a significant step in its ongoing legal battle with Ripple Labs. The regulatory body filed a motion to the US magistrate Judge of the Southern District of New York, Hon. Sarah Netburn, seeking further support for its motion to compel Ripple Labs to disclose specific financial documents related to XRP sales following the legal actions taken in 2020.
Background and Legal Context
The SEC’s legal team, led by Jorge G. Tenreiro, argues that the discovery requests on targeted XRP transactions are both procedural and proper. The basis for these requests lies in the belief that Ripple violated investment contracts according to the Howey test during regular institutional sales. The SEC’s motion points to pre-complaint contracts, indicating that Ripple and its Institutional Sales counterparties committed to exchanging XRP for cash. Despite these allegations, Ripple vehemently denies any wrongdoing and contends that any discovery after the legal complaint in 2020 should be excluded from the upcoming trial.
SEC’s Argument and Ripple’s Defense
The SEC’s motion emphasizes that Ripple’s potential argument against giving weight to its financial condition should not hinder the SEC’s ability to discover and present evidence crucial to deterrence. The regulatory body asserts its right to delve into the financial aspects of Ripple’s operations, seeking a comprehensive understanding of the situation.
Market Implications and XRP Price Action
Although the SEC clarified that it is not pursuing a mini-trial for a settlement deal, legal experts, including Australia-based crypto enthusiast lawyer Bill Morgan, suggest that a court injunction could pose short-term challenges for Ripple’s On-Demand Liquidity (ODL) business, which relies on XRP.
Meanwhile, the market responded to the legal developments, with XRP experiencing a notable price drop of approximately 3 percent in the past 24 hours. The cryptocurrency traded below a critical support level, falling from around 54 cents to 51 cents during the early London session on Wednesday.
As the legal saga between the SEC and Ripple unfolds, market participants closely monitor the implications of the SEC’s pursuit of financial documents. The outcome of this legal battle not only holds significance for Ripple but also has broader implications for the regulatory landscape surrounding cryptocurrencies in the United States.
