According to attorney Jeremy Hogan, the SEC’s argumentation in the joint letter lacks any factual basis, while Ripple convinces with facts.
The letter is the first impression for the judge and could therefore have an important influence on the outcome.
As CNF reported yesterday, the U.S. Securities and Exchange Commission (SEC) and Ripple Labs have issued a joint letter ruling out a timely settlement, at least under the current SEC administration. In addition to important deadlines agreed upon by both sides, both the SEC and Ripple had the opportunity to present their arguments.
Orlando-based attorney Jeremy Hogan analyzed the letter in a new video giving his legal perspective on the case. And as Hogan noted, this first round should clearly go to Ripple, and potentially provide a decisive first advantage:
This is the judge’s first look at this case, so this is extremely important. The case could be won or lost in the context of this letter.
Hogan’s legal take on the joint letter
According to Hogan, there are several interesting things in the letter. First, the judge asked both parties to describe their views, and the “legal bases for claims and defenses.” The SEC was allowed to comment first as a plaintiff, describing the case on pages 1 through 4, and as Hogan explains, he was “a little surprised that the SEC didn’t provide a lot of facts.”
As an example, Hogan cites one of the first paragraphs in the SEC’s portion where it argues about the “heart of the case,” the question of whether XRP is an “investment contract.” As the attorney explains, there are no facts in that paragraph that support the SEC’s arguments:
The Complaint further alleges that Defendants sold XRP as “investment contracts” under the Howey line of cases primarily because the economic reality of XRP and the way Defendants marketed XRP made a purchase of XRP in exchange for cash or other consideration an investment into a common enterprise […].
And as Hogan elicited, the next few paragraphs are no better. “There are no facts! So it’s really weak,” Hogan said. While the SEC has “some facts” it could have cited, “none of them are in here.” Further, the SEC wastes a few paragraphs on whether XRP is a currency, which Hogan said is irrelevant to the outcome of the lawsuit:
Next the SEC addresses the defendants defense in this case […] where they say, quote: Defendants principle response to these allegations is to affix a self-serving label to XRP -currency.’ Now it’s good to address your opponents defense in a lawsuit, but this is a very weak defense, if it is a defense at all.
The fact that Ripple calls XRP a currency is not the heart of its defense. And the SEC spends one, two, three, four paragraphs. This is a really pricey real estate in a 9-page letter. […] My response would be really: It doesn’t matter. A security is a security no matter what you call it. That’s the heart of the howey test.
Ripple convincing with facts
On the other hand, according to Hogan, Ripple “did a really great job.” Right off the bat, Ripple’s lawyers write that the SEC’s claim that Ripple’s sales of XRP constituted “investment contracts” lacks “any legal or factual basis.”
I think this is a great point that after Ripple sold XRP, it was then sold downstream – so how can it then be an investment contract?
Again and again in the letter, Ripple invokes the missing facts in the SEC’s opinion, particularly with regard to the heart of the case, the howey test:
Ripple also addresses the howey test and it really makes a great point here: ‘Under Howey, the SEC must show, among other things, that Ripple and purchasers of XRP entered into a “common enterprise” dependent on Ripple’s “managerial efforts.” The SEC cannot do so.’ So again, Ripple is calling out the SEC on a lack of facts.
Ultimately, he said, Ripple also provided the “perfect answer” to the SEC’s “four wasted paragraphs.” Hogan quoted the following paragraph from Ripple’s response….
The SECs’ only response is that Ripple has merely slapped a label – currency – on XRP and ignored the economic substance of XRP as an “investment contract.” That is flatly incorrect. First, it is not Ripple that labeled XRP as a currency, it was the DOJ and FinCEN that did so in 2015.
… and stated:
… Boom! I love that. I think that destroys what the SEC is saying.
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