The Securities and Exchange Commission (SEC) has filed a letter with the Southern District of New York (SDNY) requesting permission to file an interlocutory appeal in the ongoing lawsuit against Ripple Labs and its executives. An interlocutory appeal is a legal procedure that allows a party to appeal a judge’s ruling on a preliminary matter before the final judgment is issued. The SEC wants to challenge Judge Sarah Netburn’s decision to grant Ripple access to the agency’s internal communications regarding cryptocurrencies, especially Bitcoin and Ethereum.
The SEC argues that Judge Netburn’s order was “based on a misunderstanding of the governing law and an erroneous application of the relevant facts.” The agency claims that its internal deliberations are protected by the deliberative process privilege, which shields government officials from disclosing their opinions, recommendations, and advice on policy matters.
The SEC also contends that Ripple’s request for the agency’s communications with foreign regulators is irrelevant and overly burdensome, as it would require the SEC to review thousands of documents from dozens of countries. The agency says that such communications are not subject to discovery under the Federal Rules of Civil Procedure or the Hague Convention.
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The SEC asserts that allowing Ripple to access its internal and external communications would “undermine the SEC’s ability to carry out its statutory mandate and protect investors.” The agency says that it would also “create a dangerous precedent for future enforcement actions.”
Ripple, on the other hand, maintains that the SEC’s communications are relevant and necessary for its fair notice defense. Ripple argues that the SEC failed to provide clear guidance on the legal status of XRP, the digital asset at the center of the lawsuit. Ripple claims that the SEC’s own statements and actions created confusion and inconsistency in the market, and that the agency treated XRP differently from Bitcoin and Ethereum, which it declared as not securities.
Ripple also accuses the SEC of engaging in “regulation by enforcement,” by suing Ripple without warning or prior notice. Ripple says that it needs to see the SEC’s internal and external communications to prove that the agency did not act in good faith and violated Ripple’s due process rights.
The letter filed by the SEC is not a formal motion for interlocutory appeal, but rather a request for leave to file one. The SDNY will have to decide whether to grant or deny the SEC’s request. If granted, the SEC will then have to file a motion for interlocutory appeal with the Second Circuit Court of Appeals, which will have to decide whether to accept or reject the appeal.
The reason why the SEC sued Ripple Labs in the first place is because it alleges that Ripple sold XRP as an unregistered security, in violation of the federal securities laws. The SEC claims that XRP is not a currency or a commodity, but rather an investment contract that represents a share in Ripple’s enterprise. The SEC says that Ripple raised over $1.3 billion through its sales of XRP, without disclosing the risks and benefits of investing in XRP to potential buyers. The SEC seeks to stop Ripple from selling XRP, impose civil penalties, and require Ripple to return the funds it obtained from investors.
The lawsuit also names Ripple’s co-founder and former CEO, Christian Larsen, and its current CEO, Brad Garlinghouse, as defendants. The SEC argues that XRP is not a currency, but a security, and that Ripple failed to register it as such or seek an exemption from the registration requirements. The SEC alleges that Ripple and its executives misled investors about the nature, status, and utility of XRP, and engaged in manipulative and deceptive conduct to increase demand and price for XRP. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, civil penalties, and a permanent ban on Ripple and its executives from participating in any future securities offerings.
Ripple has denied the SEC’s allegations, Ripple maintains that XRP is a currency, not a security, and that it has been operating in compliance with the law. Ripple also claims that the SEC’s action is an attack on the entire cryptocurrency industry and will harm millions of XRP holders who have done nothing wrong. Ripple argues that the SEC is applying an outdated and inconsistent framework to regulate digital assets, and that it is ignoring the clear regulatory guidance and precedent that exist for cryptocurrencies like XRP.
The outcome of this legal battle could have significant implications for the future of XRP and the cryptocurrency industry as a whole. The case is expected to continue until at least early 2024, unless a settlement is reached before then.