Ripple execs file motion to dismiss securities lawsuit as SEC case falls apart

  • Ripple CEO Brad Garlinghouse and chairman Chris Larsen have filed motions requesting a California judge to dismiss the SEC’s lawsuit.
  • This comes after the two recorded yet another victory against the regulator after a judge granted their request to keep their financial records private.

Ripple‘s top executives have filed a motion to dismiss in their legal battle with the U.S Securities and Exchange regulator. CEO Brad Garlinghouse and chairman Chris Larsen want a New York court to dismiss the case with prejudice as the watchdog fails to prove its accusations. The latest motion comes at a time when a federal judge has dismissed the SEC’s bid to have the Ripple executives submit their financial records.

Larsen and Garlinghouse submitted separate motions to dismiss to the Southern District of New York on April 12. In his motion, Garlinghouse observes that the SEC has made two claims against him, both of which he refutes. The first is that he violated securities laws through his sale of XRP as this constituted an investment contract. In the second, the SEC accused him of aiding and abetting Ripple’s own alleged securities violations through unlawful XRP sales.

The SEC’s Second Claim should be dismissed because the SEC still fails to adequately allege aiding and abetting – that Mr. Garlinghouse knew or recklessly disregarded that XRP was an investment contract and that Ripple was somehow acting improperly in selling XRP.

The SEC’s First Claim should be dismissed because, under Supreme Court and Second Circuit precedent, the SEC still fails to allege that any of Mr. Garlinghouse’s own sales and offers of XRP fall within the territorial scope of the Securities Act.

SEC’s crumbling case

The SEC’s interpretation of the Howey test is incorrect, Garlinghouse further alleges. However, even if it was correct, the case would still crumble, he asserts. First. despite two years of investigations, the SEC’s ‘best claim’ is that Garlinghouse ‘was aware of “regulatory uncertainty” surrounding the treatment of some digital assets.’ This, he points out, proves the SEC can’t plausibly allege that Garlinghouse knew Ripple’s XRP sales were illegal.

Second, Garlinghouse sold all his XRP on foreign exchanges. As such, they don’t constitute securities violations. Additionally, he had rightfully earned this XRP as compensation for his role as the CEO of Ripple.

The registration requirements apply only to offers and sales of securities in the United States, and do not reach offers and sales made on foreign exchanges.

“The SEC fails to allege that Mr. Garlinghouse’s sales of XRP occurred in the U.S. Instead, it unsuccessfully tries to point to irrelevant facts in an attempt to sidestep the domesticity requirement,” the motion claims.

A New York judge has ruled that the SEC has until May 14 to respond and file papers opposing the motion to dismiss. Larsen and Garlinghouse will then have until June 4 to respond to anything the SEC throws their way.

The recent twist comes after Judge Sarah Netburn ruled against the SEC in its bid to acquire the two executives’ personal financial information. In her ruling, Judge Netburn stated, “The SEC shall withdraw its requests for production seeking the individual defendants’ personal financial records and withdraw its third-party subpoenas seeking the same.”

However, if the SEC proves that Garlinghouse and Larsen lied about their XRP transaction records, it can reopen the application.

XRP soars following Ripple victories

XRP has been soaring in the past week as the market factors in the Ripple victories. The cryptocurrency is the fourth most valuable, now only behind Bitcoin, Ether and Binance Coin. XRP has gained 27% in the past 24 hours to trade at $1.7 at press time. This is the highest it has traded since the height of the cryptocurrency bull market of 2017.

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