• The SEC has filed an amended complaint against Ripple Labs and its founders.
• The focus of the amendments is to add factual details regarding the lawsuit against Ripple co-founders Chris Larsen and Brad Garlinghouse.

Just a few days ago, the U.S. Securities and Exchange Commission (SEC) and Ripple Labs filed a joint letter with the court agreeing to common deadlines and each outlining their “legal bases for claims and defenses.” As attorney Jeremy Hogan stated in a legal analysis, the letter was a “clear victory” for Ripple. The SEC’s opinion lacked any factual basis, while Ripple convinced with facts.

Possibly because the SEC now realized this, it followed up yesterday by filing an amended complaint with the court. And of course, Hogan has also published a new video on the subject to present his legal view of things.

Ripple founders in focus of the changes

As Hogan noted, the SEC filed a 97-page amended complaint, not providing an overview of the amendments at the beginning of the document as it usually does. Instead, Hogan had to go through all 97 pages to find the changes. Ultimately, the changes were “two to three core changes,” according to the attorney.

First, the SEC is adding factual details regarding Ripple co-founders Chris Larsen and Brad Garlinghouse that were not present in the first version. As Hogan first notes, it is very rare for the SEC to take action against individuals as well, because enforcement is extremely difficult. It must prove “knowledge of intent” on the part of the defendants.

It’s not enough as of individual defendants that the SEC proves XRP is a security. It also has to prove that the individual defendants knew it was, knew it was wrong to do so and still moved forward with the sales. So this is why the fight whether the SEC can get the opinion letters from Ripple’s lawyers that warned them that XRP is a potentially a security is going to be a big issue.

According to Hogan, the amended complaint is ultimately a result of Larsen’s and Garlinghouse’s motions to dismiss the personal lawsuits (filed Jan. 27). Meanwhile, the amended complaint was previously announced by the SEC in the Feb. 15 joint letter, which stated that “they intend to file an amended complaint.” The likelihood of success on Larsen’s and Garlinghouse’s motions to dismiss is now rather low:

I still think that there will be a motion to dismiss, but I think the individuals will probably lose those motions because I think there is enough facts now to keep them in the litigation. And  that’s obviously bad for Ripple.

Why did the SEC sue Larsen and Garlinghouse?

Although it is unusual for the SEC to do so, the SEC has sued two individuals, Larsen and Garlinghouse. According to Hogan, there are three potential reasons for this: First, since both made large profits on their XRP, the SEC could seek recovery. Second, it may simply be a tactic to expose the defendants to “a stressful situation”; which is common in criminal prosecutions. Third, the SEC could leave itself a “back door” to punish the founders and let Ripple Labs go as a company.

A final important, though not obvious, point was found by Hogan in paragraph 186, where the SEC writes: “Garlinghouse’s offers and sales occurred on various digital asset trading platforms, including Platforms A and B and at least two others incorporated in the United States, and one incorporated abroad but with a principal place of business in New York.”

As Hogan notes, the SEC has hereby asserted jurisdiction. However, Ripple could also use this for its own purposes.

[…] and it does open up the door for Ripple to tell the court that certain transactions may have had an effect in America, that there is jurisdiction, but other transactions didn’t and the court can’t do anything with those because they weren’t American related enough. If Ripple wants, it can make a mess of this jurisdiction issue.

Ripple’s general counsel takes a stand

Via Twitter, Ripple’s general counsel, Stuart Alderoty, also commented on the amended complaint, denouncing that after years of waiting, a change is now coming:

As many of you have seen, the SEC filed an amended complaint today. The only legal claim remains: did certain distributions of XRP constitute an investment contract? Disappointing the SEC needed to try to “fix” their complaint after waiting years to bring it in the first place…

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