The US Securities and Exchange Commission filed a motion to dismiss a defense of lack of due process and fair notice by Ripple Labs, Brad Garlinghouse and Christian Larsen.

Litigation on whether the sale of XRP violated US securities laws continues before the Southern District of New York. The SEC summarized Ripple’s defense that “the SEC was obligated to but did not specifically warn Ripple that it was violating the law before the SEC filed suit” as “legally insufficient”.

Ripple’s contention that the SEC must warn a market participant about its legal violation, or that the SEC must issue regulations or guidance before the SEC can exercise the authority Congress conferred on the SEC to enforce the securities statutes, finds no support in the Due Process Clause or any other principle of law.

The SEC’s submission continued:

“Ripple’s fair notice affirmative defense rests on the faulty premises that the proper inquiry involves what the SEC said or did and that the SEC was required to advise Ripple of the SEC’s interpretation of the statute and application to Ripple’s conduct, such that its failure to do so means Ripple cannot be sued for the statutory violation. Ripple seems to contend that the SEC’s failure to speak in the wake of Ripple’s activity means Ripple did not have fair notice that its conduct was prohibited by the statute. But the SEC was undeniably enforcing the securities laws in the digital asset space in which Ripple operated and using official agency channels like enforcement actions and the DAO Report (and SEC staff were also providing views in no-action letters, staff guidance, and speeches by senior agency officers). Yet even if the SEC had done none of these things, Ripple’s defense, if accepted, would mean that any time an agency seeks to apply a long-existing statute to a specific set of facts, the violator can argue that the agency’s silence before the filing of the enforcement action precludes liability in that very action. That is not and should not be the law.”

SEC-v-Ripple-Labs-SDNY-20-Civ.-10832-AT-SN-22-April-2021Download


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