- According to Anderson Kill’s partner Stephen Pally, the SEC vs. Ripple case is unlikely to go to the Supreme Court.
- The lawsuit against Ripple’s founders shows the “level of egregiousness of the case.”
On the latest episode of the “Unchained” podcast, Laura Shin spoke with attorneys Stephen Pally, partner at Anderson Kill, and Gabriel Shapiro, partner at BSV Law, about the SEC lawsuit against Ripple Labs and its founders. Right off the bat, both attorneys agreed that the “level of egregiousness of the case” is different from similar cases.
For the first time, the U.S. Securities and Exchange Commission (SEC) has also sued the founders. In the SEC’s previous securities cases against Kik and Telegram, neither Ted Livingston nor the Durov brothers faced any action from the SEC. In the case of Brad Garlinghouse and Chris Larson, Palley thinks the SEC filed the suit against them for “making $600 million.” So if the SEC is trying to “claw back money” to distribute to smaller investors, it needs to get at the two founders’ funds.
On the other hand, the SEC has refrained from also suing Ripple for “fraud,” such as withholding information from investors or insider trading, although this would have been a conceivable scenario. In this regard, Shapiro noted that this would have only complicated the case, however, which may be why the SEC chose not to do so:
There was some possibility of bringing a fraud case. It’s just much harder. […] Why would it muddy the waters by bringing a weaker claim when it doesn’t have to?
A Ripple lawsuit in the Supreme Court is “unlikely”
Both attorneys also stated agreement that there was some “information asymmetry” between Ripple and the public. Gabriel Shapiro noted that if Ripple were a public company, Garlinghouse and Larsen would have to file their sales in a Section 16(b) report with the SEC to be transparent with the public. Further, Shapiro stated:
All of those protections that a typical investor in a typical security would have, XRP holders were deprived of. So, If XRP is a security, you can see how they lose out, relatively speaking, by not having this kind of disclosure.
Palley added that for the past two years, Ripple “knew they were under investigation. They also knew they have been told, I think in 2 different memos by law firms that XRP as probably a security. And the public did not know about that.”
Shapiro also recalled a study by the University of Bern that classified the XRP ledger as centralized. According to the crypto lawyer, almost every node on Ripple Unique Node List (UNL) was paid for by the company: “There’s only one that claims to be independent.”
Also arguing against a Ripple victory, according to Shapiro, is the fact that the judge who presided over the case against Kik was not convinced by the argument that KIN is a currency. Based on the circumstances, therefore, Palley contends that the lawsuit is unlikely to go to the Supreme Court. A settlement seems most likely, according to Palley.
I think that the case ultimately has to be settled. I don’t see it going up to the Supreme Court. If they take it up to the Ninth Circuit, they will probably lose. […] If I were gonna take a case to change the law and to change how we look at digital assets, this isn’t the one.