The Ripple-SEC tug-of-war continues: the US regulator refuses to bend

Legal jousts drag on – More twists and turns in thecase between Ripple (XRP) and the Securities and Exchange Commission (SEC) over the qualification of XRP tokens as financial securities. The crypto company is asking for more details.

Is the SEC already comprehensive enough?

This time, it is Ripple that has opened the hostilities. Indeed, the company has filed a motion to compel the SEC to provide clearer and more comprehensive answers to interrogatories.

The purpose of these interrogatories was to present the SEC’s application of the famous Howey test (a reading grid to qualify the nature of a financial asset). This request was issued at the very beginning of the investigation phase, but Ripple only challenged them 7 weeks later, and 3 hours before the closing. Thus, the US regulator filed an opposition to this request with a predictable line of defense:

“The defendants – Ripple that is

– waited until the end of the pretrial phase, more than 7 weeks after receiving the initial responses to the SEC’s interrogatories, to inform the SEC that they considered the responses insufficient.» Excerpt from the SEC’s opposition to the motion filed by Ripple

In essence, the motion filed by Ripplevise seeks to demonstrate that the SEC’s responses remain evasive and incomplete. As such, the SEC’s explanation of the application of the Howey test is not sufficiently reasoned. Ripple would thus be unable to verify the applicability of this test to XRP. However, according to the SEC, all supporting evidence was submitted to the proceedings:

“The SEC has substantially answered the interrogatories at issue, as required by the Federal Rules of Civil Procedure and this Court’s recent guidance that a party need not list every fact or piece of evidence, so long as it produces material items and information. “

Excerpt from the SEC’s opposition to the motion filed by Ripple

So it will be up to Judge Sarah Netburn to decide.

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Ripple is on the rise again

First of all, it looks like Ripple has a leg up whether its motion is granted or denied by the court. Indeed, if it is, the company will get more specific information about the qualification of its token. Conversely, if it is rejected, it will still be able to rely on the SEC’s flawed reasoning as to the application of its Howey test during the upcoming trial.

Second, this new procedural event comes only a week after the judge granted the SEC’s request for production of millions of messages on Ripple’s Slack. However, Ripple had argued that the SEC’s request was disproportionate and duplicative of its previous request for the production of various documents (emails, SMS, Slack messages from certain employees, …).

The company also argued that it would face technical difficulties in recovering all of these messages. The procedure had even been estimated at 1 million dollars.

However, Judge Sarah Netburn dismissed this argument out of hand, stating that Ripple’s previous agreement to produce its internal communications should take precedence over the technical difficulties. Furthermore, she said that in any case, Ripple should bear the burden of proof.

This SEC vs Ripple trial is expected to continue until mid-2022 with the current pace. It would be nice if the judge granted Ripple’s motion, as this would provide clarity on the SEC’s application of the Howey test to digital assets. At the moment, its random and ambiguous results are causing legal uncertainty. The recent threat of a complaint received by Coinbase is a further example.

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