• The SEC asks Ripple for financial data and sales contracts in their ongoing legal dispute to strengthen their case.

• Ripple responds by saying recent financial info is irrelevant, and they won’t dispute their ability to pay penalties.

In the ongoing legal battle between Ripple Labs and the United States Securities and Exchange Commission (SEC), the SEC has recently requested Ripple to provide its financial statements for 2022 and 2023, along with Ripple’s contracts related to institutional sales. The SEC requested access to Ripple’s institutional sales contracts that have been in effect since the SEC initiated legal proceedings against the company in late 2020.

 This comes amid a correspondence war between the two parties and the SEC’s ongoing enforcement action against Ripple. The SEC made its move on January 11, 2024, when it addressed a letter to New York Southern District Court Judge Sarah Netburn. 

The significance of this request lies in the ongoing legal debate over whether Ripple’s XRP sales constitute securities sales. Notably, institutional sales of XRP were found to have satisfied the Howey test in a summary judgment rendered by Judge Analisa Torres in July, thereby classifying the trades as securities sales. The SEC is eager to review Ripple’s financial statements and sales agreements to strengthen its case.

Additionally, in response to the SEC’s request, Ripple sent a letter to Judge Sarah Netburn on January 19, 2024. In their communication, Ripple argued that the discovery phase of the legal proceedings had already concluded in August 2021. Consequently, Ripple contended that its conduct since initiating the lawsuit should not be relevant to the ongoing case. Furthermore, Ripple emphasized that its financial condition should also be considered irrelevant since it had no intention of arguing its inability to pay potential penalties.

SEC’s Counterargument

The SEC, however, did not find Ripple’s stance convincing. In a letter dated January 23, 2024, the SEC asserted that Ripple had failed to claim any prejudice by producing its recent financial statements. The regulatory agency cited a precedent indicating that a defendant’s wealth is a relevant consideration when determining the size of penalties to deter misconduct. The SEC contended that Judge Torres had left open the possibility of further discovery actions, making Ripple’s financial standing and post-complaint conduct relevant factors.

The SEC’s insistence on examining Ripple’s financial status and conduct after the lawsuit’s initiation is not without reason. The Securities Act, presumably referring to the Securities Act of 1933, specifically contemplates injunctions when a violation is deemed ‘about to’ occur. By scrutinizing Ripple’s financial stability and post-complaint actions, the SEC seeks to gauge the likelihood of a recurrence of violations. Moreover, the definition of a sale, particularly in the context of post-complaint order fulfillment, could potentially impact the size of the disgorgement in the case.

Ripple’s Strategic Move

Amidst this legal turmoil, Ripple remains resolute and determined to convey its financial strength to stakeholders. Ripple’s CEO, Brad Garlinghouse, has emphasized that the upcoming Initial Public Offering (IPO) serves a strategic purpose beyond fundraising. It represents a calculated step toward the next phase of the company’s growth, indicating its intent to weather the regulatory challenges.

Notably, pro-XRP attorney Bill Morgan reacted to the SEC’s characterization of post-complaint contracts disclosed in the Zakinov lawsuit. Morgan stated that Ripple had halted programmatic sales as early as May 2020 and had restricted sales exclusively to On-Demand Liquidity (ODL) customers. This response underscores the complex and nuanced nature of the legal arguments being presented by both sides.

In the wake of these developments, the XRP cryptocurrency experienced a 1% drop in its price within the past 24 hours, with the current trading price at $0.5. The 24-hour low and high recorded were $0.509 and $0.518, respectively. Furthermore, trading volume declined 25% over the same 24-hour period, signaling a decrease in trader interest.