The recent move by Ripple‘s legal team in their ongoing dispute with the US Securities and Exchange Commission (SEC) compares the situation to the Govil case, offering fresh optimism for a positive resolution in this lengthy regulatory conflict.
A dispute between these two parties emerged in December 2020 when the commission initiated a lawsuit against Ripple Labs, its CEO Brad Garlinghouse, and co-founder Chris Larsen, claiming they sold XRP as unregistered securities. Currently, the focus of this legal fight lies on the SEC’s accusation that the exchange favored institutional investors during the sale of XRP through their On-Demand Liquidity (ODL) platform. The SEC argues that had the exchange registered these sales, they would have been mandated to disclose any discounts or special treatments given to specific institutional investors.
Instead of that, let me tell you this: The lawyer for the cryptocurrency company counters by bringing up the Second Circuit Court of Appeals’ denial of the regulatory agency’s appeal in the Aron Govil case. This decision reinforces the idea that if a purchaser hasn’t suffered any financial damages, the exchange regulator cannot force the seller to give back ill-gotten gains. Ripple’s Chief Legal Officer, Stuart Alderoty, underscores this point by pointing to the commission’s repeated losses, specifically referencing the Govil case.
“The SEC has suffered another setback as the Second Circuit Court of Appeals denied their request to reevaluate the ruling in the Govil case. In this decision, the court determined that if a seller hasn’t financially harmed the buyer, the SEC cannot demand disgorgement from the seller.”
Legal expert Bill Morgan, sharing the same view as Alderoty, believes that Ripple’s ability to prove no institutional investor incurred financial damages could strengthen its defense based on the Second Circuit’s ruling in the Govil case.
The agency argues that their main concern is the possibility of financial injury. According to the regulator, Ripple failed to disclose discounts given to favored investors, denying non-preferred investors the opportunity to negotiate better deals and potentially causing potential losses for them.
Bill additionally pointed out that the regulatory body intends to seek compensation equivalent to the ill-gotten gains, referencing the Govil case. He emphasized the SEC’s stance that such compensation should correspond to the unjustly acquired profits, considering any losses or financial damages suffered by investors. According to the SEC’s assessment, Ripple generated $991 million in revenue from institutional sales, while their expenses amounted to approximately $115 million. Consequently, the SEC proposes that Ripple forfeit the difference between these two figures, which amounts to around $876 million.
If Rippe can prove that no institutional investor experienced financial harm, then the decision of the Second Circuit Court of Appeals not to review the Govil case is beneficial for Ripple.
Bill responded by challenging this viewpoint, focusing on the importance of the undisclosed discounts denying non-institutional investors the opportunity for better deal terms – a potential injury instead of an actual monetary loss for them. In essence, Bill contended that the SEC’s concern wasn’t about financial losses for non-institutional investors but rather the hidden advantage given to preferred institutional investors.
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2024-04-15 10:38