Ripple SEC suit decision: XRP court ruling timing and details in full

The court case between Ripple Labs and the US Securities and Exchange Commission (SEC), which has lasted since 2020 and will set a precedent for the cryptocurrency industry, could soon come to an end. Summary judgment motions have been filed by both the SEC and Ripple Labs, the company behind ripple (XRP).

Stu Alderoty, Ripple’s general counsel, told Capital.com: “The filings show that the SEC is acting outside their legal limits. The SEC is not looking to apply the law – they are looking to remake the law in the hopes that it can impermissibly expand their jurisdiction.”

Ripple was then handed a small win, as the judge hearing the case ordered the SEC to hand over the “Hinman documents”, which were exchanged on 20 October. These mainly relate to a speech in which a previous SEC director said that ether (ETH) was not a security.

Brad Garlinghouse, Ripple’s CEO, recently said that the case could last another three to four months and would end in the first half of 2023. He also revealed that Ripple would consider a settlement if the SEC agrees that XRP is not a security.

Since then, a wave of organisations have come out in support of Ripple and submitted amicus curiae briefs to the court. A total of 12 different briefs have been submitted, including one from industry leader Coinbase.

XRP rallied after the filing of the summary judgments, in reaction to the first glimpse of the court case’s end. It also surged after the recent Hinman ruling. But a recent ruling on the relevant LBRY case has sent XRP’s price spiralling.

Is XRP a security?

Ripple is a cryptocurrency network that aims to bring fast, low-cost payments to financial institutions. It is powered by the XRP native cryptocurrency, which initially launched in 2013 to raise funds for the company.

However, in December 2020, the SEC sued Ripple Labs, claiming it had raised $1.3bn by selling XRP through unregistered security transactions.

However, Garlinghouse and Ripple Labs chair Chris Larsen claimed the sales were legal. Their argument was based on the so-called Howey Test, from a US court case, which determines whether an asset is a security.

While Ripple does not deny the sale of XRP, the cryptocurrency company argues that it does not meet the criteria of the Howey Test. Specifically, Ripple argued, it did not meet the first rule, which requires an investment contract.

Garlinghouse said on Fox Business: “Our point is, Ripple doesn’t have a contract. With whom is the contract? It isn’t a written contract, it’s not an oral contract, it’s not an implicit contract.”

However, the SEC argued in the summary of judgment filing that XRP met the “investment of money” criterion of the Howey Test.

The SEC declined Capital.com’s request for a comment.

Filings

On 17 September 2022, both the SEC and Ripple Labs filed motions for summary judgment to the judge in the case, Analisa Torres of the US District Court for the Southern District of New York.

Two days after the filings, the court reviewed and granted the request for the Chamber of Digital Commerce, an American advocacy group for blockchain technology, to file an amicus curiae brief. The brief supported Ripple’s argument. It said:

“The court has previously asserted, correctly, that a digital asset is not a security solely by virtue of being represented in digital form or recorded on a blockchain ledger.”

The SEC took no position on the brief, according to defence attorney James Filan. However, the SEC said it may request more time if more amicus briefs are granted.

In response, Ripple’s defence team said: “This is yet another transparent attempt to further delay resolution of this case and the court should reject it.”

Another motion was granted on 21 September that gave deadlines for motions to seal – requests that prevent evidence in a case being made public.

Garlinghouse then appeared on Fox Business on 22 September. He suggested it was unlikely the case would go to trial, and expected a ruling from the judge instead.

“Trials and juries are really to determine if there’s uncertainty about facts. The facts aren’t in dispute here. The law is in dispute.”

He said: “We think [the judge] has the information to make a ruling and we think that it is very clear that the SEC is grossly overreaching its authority.”

Garlinghouse criticised the SEC again on CNBC the following day. He said: “We think this is just a gross overreach of the SEC, trying to wrest control of that uncertainty that has existed [on regulation].”

Alderoty also commented on the need for regulation. He told Capital.com: “We will continue to fight this case so that the industry can get the regulatory clarity it desperately needs so that crypto innovation can flourish in the United States.”

Both parties have since submitted motions of opposition to the counterparty’s summary judgment filing. The legal teams restated their positions on whether XRP should be classified as a security.

The Hinman documents

Most recently, Judge Torres ordered the SEC to hand over the documents by William Hinman, the former SEC corporation finance division director.

This was a win for the Ripple team, as the documents mainly reference a speech given by Hinman at the Yahoo Finance All Markets Summit in 2018, in which he said that ether was not a security.

According to Reuters, Hinman said: “Putting aside the fundraising that accompanied the creation of ether, based on my understanding of the present state of ether, the Ethereum network and its decentralised structure, current offers and sales of ether are not securities transactions.”

The Hinman documents could be a key piece of evidence for Ripple as they could reaffirm its position that XRP is not a security.

The judge overturned the SEC’s objection on 29 September 2022, after the commission claimed it was protected by deliberative process privilege.

Ripple’s legal team recieved the documents on 20 October. Alderoty tweeted: “Over 18 months and six court orders later, we finally have the Hinman docs (internal SEC emails and drafts of his infamous 2018 speech). While they remain confidential for now (at the SEC’s insistence), I can say that it was well worth the fight to get them.”

Ripple slams SEC over amicus brief opposition

The private charter jet company TapJets and payment provider I-Remit were the first to have submit amicus briefs in support of Ripple. Both argued that the blockchain company was vital to their business.

However, the SEC asked the judge to deny these requests. The commission argued the letters failed to explain the relevance with the ongoing court case.

In response, Ripple strongly stressed that the briefs provide an important perspective to the court on whether investors expected XRP profits.

It said: “If the SEC cannot evaluate the veracity of such claims then it had no business bringing this litigation in the first place.”

Then, on 11 October, Judge Torres approved TapJets’ and I-Remit’s request to submit these briefs. The companies had three days to file these documents.

Since then, more industry players have requested permission to send in amicus briefs in support of Ripple. A total of 12 different organisations have submitted briefs, according to Garlinghouse.

The latest to file a brief was the Coinbase cryptocurrency exchange, who urged the judge that Ripple did not have enough notice to comply with asset security laws.

Its statement said: “The absence of formal rulemaking has led to unexpected enforcement actions like this one that create market uncertainty and profoundly disadvantage US trading platforms like Coinbase as they compete with offshore platforms in jurisdictions where there is no risk of regulatory enforcement surprise.”

An amicus brief from the Blockchain Association, a crypto advocacy group, was another recent addition to Ripple’s argument. It announced on 28 October that it is standing in support with Ripple.

Kristin Smith, the executive director of Blockchain Association, said in a statement: “Ripple’s decision to fight this case in court provides an opportunity for the industry to push back against the SEC’s regulation by enforcement agenda and open the door to modernised standards for the industry.”

In response to these 12 filings, the SEC filed a motion to extend the time to reply to these briefs with the new deadline proposed for 30 November.

It also requested that any additional amicus briefs be handed in by 11 November. Ripple consented to this and the new dates are in motion, according to Filan.

LBRY’s loss to the SEC

The recent win by the SEC in its case against LBRY, a publishing crypto project, could have set precedent for the XRP case.

This recent ruling has quite a few similarities with the XRP case. SEC filed a complaint against LBRY as it claimed LBRY had failed to register its initial token offering. Meanwhile, LBRY argued that its LBC token is not a security and that the SEC did not give fair notice.

Jeremy Hogan, an attorney and partner at the law firm Hogan & Hogan, tweeted: “I would expect this case to make its way into the SEC’s final brief in the Ripple case.”

LBRY also turned to Twitter to voice its frustrations, saying: “The most f***ed up part of this whole situation is that even after five years of fighting and a court ruling, we still honestly do not know how to legally launch a public blockchain in the US.”

Cardano founder’s views

Charles Hoskinson, the founder of the Cardano blockchain and cryptocurrency, shared his views on the case on Twitter.

He argued that XRP, like most layer-1 protocols, does not pass the Howey test and is not a security. Hoskinson clarified that it was absurd to apply securities regulations to assets that have millions of international independent investors and users.

But he disagreed with Ripple’s approach to the case. Hoskinson said: “Thus it seems totally unnecessary to construct elaborate personal attacks on former and current government employees and also attack Bitcoin for its energy use or Chinese influence. Individual corruption has nothing to do with Howie [sic].”

In a separate thread, Larsen agreed with Hoskinson “on the larger point at hand”.

He tweeted: “There is no regulatory clarity on how to classify and use crypto in the US, which is why the SEC is using regulation by enforcement to bring all crypto under their remit. This affects all of us.”

However, Hoskinson has since been the target of abuse from the XRP community.

He posted a 15-minute video on Twitter about the XRP community and separately tweeted: “I’ve never seen a group so radically pick up a few words and run with it. Great job turning an ally into someone disgusted and totally checked out.”

XRP’s rally

After the filing of summary judgment motions, XRP’s price saw a steady climb. It soared to a high of $0.55 on 23 September 2022, a 71% increase from the $0.32 low seen a week earlier.

The climb slowed slightly as investors awaited further news, but was reignited after the Hinman documents ruling. It managed to break past the $0.50 barrier again and achieve a high of $0.54 on 9 October.

After a slight correction, XRP climbed again, following the new amicus briefs and the new dates proposed by the SEC. It peaked at $0.507 on 5 November, but then plummeted after the LBRY news.

At the time of writing on 9 November 2022, XRP was trading at $0.36, down 18% in the past week and 27% over the previous month.

Looking ahead, Garlinghouse said at the DC Fintech Week conference that the end was in sight, and that the lawsuit would end in the first half of 2023. The CEO also said that he would consider a settlement, as long as XRP is not classified as a security.

However, since the summary of judgment motions was published, neither party has shared an update of the schedule. The judge’s office, the court clerk and the SEC were unable to comment on the likely schedule of the case.

According to the schedule filed by Filan, motions to seal all materials related to the summary judgment motions will close on 22 December and closing briefs will take place before Christmas. It is not clear if or how the new dates proposed by the SEC will change this schedule.