XRP lawsuit: Is the SEC ‘triply wrong’ about its latest filing?

The ongoing lawsuit filed by the United States Securities and Exchange Commission against Ripple Labs is very busy as it is, with a host of motions and oppositions and replies flooding the court over the past few weeks. It would now seem that the court presided by Judge Netburn will have to contend with yet another legal document – A sur-reply against the SEC’s own reply in support of its motion to strike Ripple’s Fourth Affirmative Defense.

What is a sur-reply though? According to US Legal, it is merely an additional reply to a motion filed after the said motion has been fully briefed. In the present case, the defendants have requested leave to file a sur-reply by citing the “new arguments” raised by the SEC in its response dated 27 May.

What are these new arguments, however? According to Ripple, the regulatory agency has relied on a report by Cornerstone Research in the said reply to assert that the defendants’ fair notice defense fails. The report in question, the SEC had argued, highlighted how the agency had “brought more than seventy cases that subjected other digital assets to the application of federal securities laws.” In doing so, the plaintiff had asked the court to take judicial notice of the same.

According to Ripple’s proposed sur-reply, however,

“All of that is in support of an inappropriately premature request for this Court to conclude, as a factual matter, that market participants had fair notice that XRP would be considered a security.”

Here, it’s worth noting that the Cornerstone Research report was distributed only in May 2021, well after the defendants had filed their opposition brief.

The aforementioned filing also claimed that the SEC’s reply brief “continues to ignore the legal standards applicable to motions to strike,” with Ripple Labs adding that in doing so, “The SEC is triply wrong.”

According to the defendants, the Court should disregard the report and refuse the SEC’s request to take judicial notice of it because a) It is not a public record and, b) The SEC hasn’t made any attempt to establish the report’s full accuracy.

What’s more, Ripple also argued that the SEC’s characterization of similar enforcement actions being filed well before it itself was charged, is “misleading.” In a reply that was labeled as “brutal” by attorney James Filan, the blockchain firm observed that while 37 of the 75 cases so cited did not involve the sale of digital assets at all, all the remaining cases were in the context of an ICO.

“The SEC has never before this case asserted that a sale of digital assets outside the context of an ICO constituted an offer or sale of securities….. Not one of these cases alleged a violation of Section 5’s registration requirements for a sale of digital assets outside the context of an IPO.”

The proposed sur-reply added,

“SEC’s established pattern of asserting Section 5 violations only in the context of ICOs, and not in the context of already-established digital assets, would have given comfort to a reasonable person that XRP was not a security and that its sales did not require registration.”

The Cornerstone Research report, therefore, supports Ripple, not the SEC, the defendants concluded.