Lawyers representing Ripple CEO Brad Garlinghouse and co-founder Chris Larsen have filed a notice of supplemental authority with the court to bolster their individual motions to dismiss the case brought against them by the U.S. Securities and Exchange Commission in late December 2020.
It cites a recent public statement made by two Republican SEC commissioners, Hester Peirce and Elad Roisman, in opposition to an enforcement action taken against cryptocurrency website Coinschedule.com that was promoting initial coin offerings (ICOs) while receiving money from token issuers.
On July 14, the SEC announced that it had settled charges against Blotics, the website’s operator. It agreed to a penalty of $153,434 in addition to $43,000 in disgorgement.
However, Peirce and Roisman expressed their disappointment with other commissioners since the settlement never actually mentioned which tokens illegally promoted by Coinschedule actually were securities:
We nevertheless are disappointed that the Commission’s settlement with Coinschedule did not explain which digital assets touted by Coinschedule were securities, an omission which is symptomatic of our reluctance to provide additional guidance about how to determine whether a token is being sold as part of a securities offering or which tokens are securities.
In total, the website has profiled more than 2,500 digital assets.
How it plays into Ripple’s hands
Ripple’s lawyers specifically put some parts of the statement that highlight the perceived lack of regulatory clarity in bold:
There is a decided lack of clarity for market participants around the application of the securities laws to digital assets and their trading.
In a rare move, the SEC took the individual defendants to court, accusing Garlinghouse and Larsen of aiding and abetting illegal XRP sales.
As reported by U.Today, the executives argued that their transactions were predominantly foreign and that the watchdog had fallen short of plausibly alleging their recklessness.
Garlinghouse and Larsen’s lawyers believe that the statement related to Coinschedule proves that charging the defendants would be “legally untenable.”
Plainly, it could not have been “so obvious that the [Individual Defendants] must have been aware of it ”years ago that XRP was an “investment contract” when two of the five SEC Commissioners acknowledge today that the regulatory status of digital assets remains so characterized by a “decided lack of clarity” that “the only certainty we see is that people have questions about how to comply with the applicable laws and regulations.