TRANSCRIPTION OF VIDEO:
Hello and welcome to Legal Briefs – XRP edition. This week saw the filing of the XRP holder’s letter seeking intervention into the lawsuit, and quickly thereafter responses from both the SEC and Ripple and this battle is getting amazing. I’m like a kid at the movies watching this (back when we used to go to the movies) and this week we are going to take a look at, among other things, how Ripple is using the XRP Holder’s motion to attack the SEC’s position and …well – watch this –
Just imagine Thor is the XRP Holders and Iron Man is Ripple…
“Wait a minute” “we all know who the real heroes of that movie were – get out of there.”
Uhhmm…Yes Dear.
Hello this is attorney Thien-Vu Hogan and let me tell you what’s really going on here. The SEC is being put between a rock and a hard place by the XRP Holder’s motion for intervention and Ripple’s response to it and we are going to tell you about that and ALSO the possible resolution of ONE of the KEY parts of the lawsuit and what that would mean for YOU. Stay tuned you DON’T want to miss this. And THAT is how it’s done.
Today we are looking at the motion to intervene by the XRP Holders and the responses by Ripple and the SEC and the SEC has painted itself into the bit of corner here and I will tell you the easiest way out for the SEC involves essentially letting go of one part of its case – the most important part for you. It’s subtle but I am going to show it to you
But Before we begin please remember to not rely on me for legal advice – if you really need a GOOD lawyer, you have to pick my wife out from a lineup. Let me know in the comments if you choose correctly!
I am a lucky man.
In any case, as you may know on March 19, Attorney John Deaton filed his letter motion on behalf of over 10k XRP holders to intervene in the lawsuit which means that those holders would become a party to the litigation. This would grant them the ability to get involved in discovery and perhaps most importantly for them to submit a motion for summary judgment to the Judge in which personal statements by individual XRP holder could be submitted showing the Judge how this lawsuit BY the SEC – which is supposed to be protecting them, is instead hurting them. As Att’y Deaton says “By alleging that XRP sold and/or distributed by Ripple- in the present day – are unregistered securities, the SEC is implying that all XRP constitutes unregistered securities, including the XRP in the accounts of XRP Holders.”
This intervention is a big problem for the SEC for that exact reason. The SEC’s whole purpose is supposed to be to protect the purchasers of XRP and instead you have 10k of them coming forward and saying “you are actually hurting us – no thank you for the “protection”, we’ll pass.”
But before we get to that let’s take a look at the bind that the SEC has been put in.
Ripple in it’s response to the motion to intervene in essence USES the motion to intervene to highlight the most important issue facing it. As I’ve said for the last month or so, Ripple must argue that each and every sale is a separate event and by doing so differentiate more recent sales from sales in 2019, 2020 and current sales. The SEC on the other hand must (and is) arguing that all of the sales were kind of one big eight year “offering” or one big “sale” and try and lump ALL the sales together.
So knowing that, see what Ripple is doing here. First, in Section I Ripple highlights the damages caused XRP holders by this lawsuit and ALSO something that is Super important – look at these two sentences:
“Based only on unproven allegations, the SEC has effectively shut down trading by XRP holders over exchanges in the United States. And it has done so on the basis of a complaint whose theory of liability is ambiguous at best, and at worst deliberately misleading so as to arrogate for the SEC optionality as this litigation progresses.”
Ugh. I don’t like how that last part was phrased “arrogate?” but here’s what they are saying. Ripple is saying that the lawsuit by the SEC was so vague and conclusory that the SEC was trying to leave itself two paths forward in the litigation – it’s so vague that the SEC can say they are arguing that ALL XRP is a security OR if it so decides it can say “Oh no Judge we would never suggest that individuals are selling unregistered securities because that would be ridiculous – we are supposed to be PROTECTING the people. The SEC is trying to leave it open to argue BOTH ways. And Ripple is absolutely correct here – that is EXACTLY what the SEC is doing because the LAST thing the SEC wants to get into is being forced to argue not only that the numerous sells by Ripple were sales of illegal securities but also have to argue about the billions of smaller transactions in the secondary market. The SEC just wants some vague ruling that “sales constitute unregistered sales of securities” and give the Judge some vague promise “Don’t worry Judge – we won’t be going after the secondary market of course not – we are the good guys sticking up for the small people judge” and hope the Judge goes with that.
And what Ripple is doing here very effectively is they are piggy-backing off the motion to intervene and calling the SEC out on this and saying – and this is Section II – saying “You have to choose – are you alleging XRP is kind of inherently a security or is this lawsuit ONLY about sales by Ripple and Garlinghouse? And here’s how they say it:
“The SEC now has a chance in the face of the putative Intervenors’ Letter to confirm that its suit is not intended to affect the secondary retail market for XRP in the United States. Despite some broad language in the amended complaint, the SEC has at times suggested that its theory of liability is indeed more limited, such that secondary-market sales and other transactions in XRP would not be subject to the federal securities laws.”
See where this is heading? First, Ripple is cueing the Court in that each sale is different – that helps them. And with even more focus than that Ripple is basically arguing… wait for it… #RelistXRP, which is where I was kind of hoping they’d take it and then Ripple says this which is brilliant:
“Reaffirming this narrow theory of liability, and clarifying that the SEC does not seek to establish that XRP is, per se, an investment contract, would minimize any interest Intervenors have in the outcome of this litigation.
Love it. Hey SEC, you don’t want this motion to intervene granted? Then just confirm to Court that you are not trying to establish that XRP is per se a security and maybe then we might agree that there is no reason for them to be involved. Perfectly reasonable but also the Perfect Trap or maybe it’s a subtle outline of an offer of settlement. This is very subtle, but HUGE, which is why I like it so much. (rub hands together)
What Ripple is suggesting is essentially a settlement in which the SEC agrees to let go of all current and future sales and only continue the litigation as to pre-lawsuit sales. How is that? And why do I have some evidence that the SEC might be going for it? And what’s that mean for you? Here we go.
SO, as we know, it’s the sale of XRP that the SEC regulates. IF the SEC stipulates to what Ripple is suggesting – that it is not arguing that XRP is per se a security, then each sale would have to be looked at on its own facts – how was it sold, what promises does Ripple make, How decentralized is the ledger, what use cases are functioning, and you have to look at each sale individually. That would be the law if the SEC agrees – and if THAT IS THE CASE, then this lawsuit cannot possibly capture FUTURE SALES because we can’t see into the future – meaning the Court won’t have any facts about future sales. The SEC’s agreement on the record to this proposal takes future sales, sales from escrow, out of the litigation. In fact, it probably takes all pre-litigation sales out of the picture because, of course, there are only allegations in the lawsuit up until it was filed. This de facto settlement would mean the secondary market would be in the clear, XRP holders would be in the clear, and that Ripple would be able to continue to fund its business with XRP sales and the litigation would continue only in regards to sales of XRP between 2013 and December 2020. Ripple has already SAID that is the very thing they want. And what about the SEC?
Well, let’s look briefly at evidence they might possibly be on board. Look at the fist paragraph of the answer:
“On December 22, 2020, the SEC filed this action, alleging as relevant here, that Defendants Ripple Labs, Inc. (“Ripple”) and Ripple’s two CEOs, engaged in unregistered offers and sales of XRP from 2013 through December 2020 in violation of Section 5 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77e. At the heart of the SEC’s case is its contention that Defendants offered and sold XRP as “investment contracts” and therefore securities under SEC v. W.J. Howey Co., 328 U.S. 293 (1946).”
What do you see there? I see the past tense “they sold” “offered” and more importantly look at how the SEC outlines its lawsuit allegations to the Judge: “Ripple and two CEOs sold XRP from 2013 through December 2020” What about “and continuing” or “will continue” or any such language. It’s not there. Could it be sloppy pleading? Possibly. But if not, then maybe the SEC is signalling its willingness to throw out anything about January 2021 and into the future and just focus on 2013 thru 2020.
And would that be good for XRP? You tell me. Clarity for exchanges, sales of XRP from escrow continue. Ripple looking at a big fine if they lose.
And let me suggest that that’s not a bad thing if I put myself in the shoes of the SEC lawyer right now. You are supposed to be, your very existence is supposed to be to protect individual investors and here you have a BIG case where you have tens of thousands of people basically wanting to get into the litigation AGAINST you. That’s like you’re a cop who shows up to arrest a guy and all of the “victims” start shouting at you to leave him alone. Now, I have to give props to the lawyer -he does a good job of downplaying this by telling the court there’s ALSO a lawsuit AGAINST Ripple for selling unregistered securities and that negates the weirdness somewhat but it’s still there EVERYWHERE – highlighted by the fact that most of the cases the SEC site to in its letter against the intervention reference cases where the intervention by the purchasers of securities wanted to jump into the lawsuit to go after the SELLERs of unregistered securities – not against the SEC! The whole case is butt-faced backwards!
But in any case, let’s say the SEC does NOT take the olive branch from Ripple and wants to charge forward with current and future sales in the litigation – what do I think will happen with the motion to intervene? It’s hard to say because a lot is left to judicial discretion – meaning the judge can do whatever she wants but if I was the Judge I would probably go along with the suggestion contained in Ripple’s response:
“But Defendants take no position at this time as to whether intervention or some other, more limited, participatory rights – such as “elevated amicus status” – are appropriate.”
To allow 10k litigants into this type of case, even as a class, might really trip up the litigation. An Amicus is an interested party who can submit a brief laying out its position so the Judge can take it into account without the Amicus being an actual party in the lawsuit. This would be a good resolution because it gets the XRP stories in front of the judge without any delays in the procceedings.
And so, you can see that the Motion for Intervention really was the lightning powering this latest Ripple attack and PERHAPS resolution to the MOST IMPORTANT ASPECT OF THE LITIGATION FOR YOU.
Remember to never give in to feelings of powerlessness but remember the words of Christine Whitman “ “Anyone who thinks that they are too small to make a difference has never tried to fall asleep with a mosquito in the room.”
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