On Monday, the US Securities and Exchange Commission (SEC) filed its Letter of Supplemental Authority in support of its motion for summary judgment against Ripple. The SEC brought up a Massachusetts District Court opinion in its case against Commonwealth Equity Services LLC, dated April 07, 2023, as confirmation that the Howey Test does not require a separate fair notice. The judge in the Commonwealth case acknowledged that a 50-year-old Supreme Court precedent regarding disclosure requirements is sufficient to justify fair notice.
In response, Ripple quickly filed its reply letter, detailing why the Commonwealth case does not provide additional authority for the SEC to reject the fair notice defense. The XRP community attorney, Bill Morgan, agrees with Ripple’s reasoning and stated that Ripple reminded Judge Torres the Upton case in which the Defendant’s fair notice defense was allowed, is a binding precedent, unlike the recent case the SEC relies on, which isn’t and is totally different on the facts and evidence anyway.
Ripple argued that in the Commonwealth case, unlike Ripple, the broker did not present any timely evidence on the fair notice defense. The broker only cited SEC guidance and presented a paid expert witness. Ripple, on the other hand, presented a plethora of evidence from the SEC’s own filings and its communication with third parties. These show that reasonable market participants who sought to understand what the SEC would permit or prohibit considered XRP not to be an “investment contract.”
Furthermore, it was not disputed in Commonwealth that the Investment Advisers Act applied to the defendant’s conduct and required it to disclose economic conflicts of interest. In Ripple’s case, it is questionable whether the Securities Act applies at all. Therefore, Garlinghouse and his company countered the SEC: “The SEC’s boast of the ‘unbroken chain of district court decisions’ rejecting fair notice defenses, on summary judgment, in SEC enforcement actions, is irrelevant. The Court has already rejected the SEC’s reliance on these cases.”
As Ripple points out, the two cases are not comparable. The closest case, according to Ripple, is the Upton case, which the SEC excludes from its list because it is an appellate decision. Hence, the letter concludes, “[The case] is binding precedent and ruled in favour of the defendant’s fair notice defense. This court should do the same, and Commonwealth does not change that.”
Thanks to Ripple’s quick response letter, one concern of the XRP community is also likely to prove unfounded: there should probably be no delay in the summary judgment.
At press time, the XRP price traded at $0.5376, up 6,2% in the last 24 hours.
