Ripple’s executive chairman Charis Larsen and its CEO Brad Garlinghouse have asked U.S. courts to dismiss the U.S. Securities and Exchange Commission’s (SEC) lawsuit alleging securities violations associated with the sale of the XRP token against them.
A legal letter informing Judge Analisa Torres at the U.S. District Court for the Southern District of New York of a motion to dismiss shows lawyers for Larsen argued the SEC’s amended complaint has failed to “state a claim” against the firm’s executive chairman.
Similarly, Brag Garlinghouse’s legal counsel has presented the court with arguments to dismiss the lawsuit. In a letter sent to Judge Torres, Garlinghouse’s legal counsel Matthew Solomon described the case as “plain and simple” regulatory overreach.
Late last year, the SEC sued Ripple, its CEO Brad Garlinghouse and chairman Chris Larsen alleging the firm and its executives “raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.” Both executives used somewhat similar arguments in their documents.
Larsen’s lawyers argued the SEC failed to show how the executive knew at the time XRP would be considered a security, and Ripple’s activities were not appropriate. They point to the Department of Justice and the Financial Crimes Enforcement Network (FinCEN) considering XRP a “virtual currency” and not a security. Their letter, first spotted by CoinDesk, reads:
The SEC’s own allegations are not only deficient but affirmatively show it cannot meet this standard. At a minimum, the SEC must allege that it was ‘so obvious’ that XRP transactions were securities and Ripple’s conduct was improper that Mr. Larsen ‘must have been aware of it.’
The lawyers also argued the regulators failed to show Larsen provided “substantial assistance to Ripple in selling his XRP tokens, nor did the regulator shows his transactions were within the U.S. and, as such, within their jurisdiction.
Similarly, Solomon described Garlinghouse as simply doing his job when selling XRP, and pointed out the SEC failed to adequately prove that Garlinghouse’s XRP sales fall within the scope of the Securities Act – if they were even considered investment contracts.
Solomon pointed out the Securities Act can be applied to sales within the U.S., but the SEC failed to show relevant transactions the CEO executed within the country. On top of these arguments, Garlinghouse’s team pointed to FinCEN seeing XRP as a virtual currency, requiring Ripple to implement anti-money laundering controls that would not be applicable to securities transactions.
Finally, Larsen’s defense also alleged the SEC’s claim for monetary relief is time-barred :
Because the SEC has alleged that the sales of XRP over a multi-year period constituted only one offer … the statute of limitations began to run in 2013 and expired in 2018.
As CryptoGlobe reported most cryptocurrency exchanges delisted XRP over the lawsuit, which led to a price plunge after the lawsuit was announced. Some cryptocurrency exchanges, however, sided with Ripple on the lawsuit.
Crypto exchange Uphold pointed out that the SEC’s goal is to protect consumers, and believes it’s hard to see “how a judgment rendering XRP essentially worthless and inflicting billions of dollars of losses on retail investors” would square with that goal.
Ripple itself has argued the lawsuit “already affected countless innocent XRP retail holders with no connection to Ripple.” It added it “muddied the waters for exchanges, market makers, and traders.”
