The Securities and Exchange Commission (SEC) has admitted that before instigating legal proceedings against Ripple, it never informed inquiring third parties that it considers XRP a security.
“…the Commission admits that before the filing of this case certain third parties inquired about the legal status of XRP. However, the Commission did not state a view one way or the other in response.”
The comment came out in a “request for admissions to the SEC” document attached to the latest court filing. What’s more, this piece of evidence now forms an official admission in the case.
But why is that important?
How Does This Help Ripple?
The ongoing SEC vs. Ripple lawsuit is currently still in the discovery phase. Since December 2020, both sides have sparred, on several motions, with the intent of verifying their respective claims.
On balance, Ripple has undoubtedly come out on top. For example, in compelling the SEC to answer if Ethereum is a security recently. This point strengthens Ripple’s case regardless of how the SEC answers.
“If the answer is “no,” then it opens the door for Ripple to compare XRP to Ether. And as we know, only Ethereum had an ICO…
“Yes,” is not a politically fathomable answer for the SEC.”
A significant aspect of the defense comes down to “fair notice.” This asserts that Ripple was under the assumption that XRP, Bitcoin, and Ether were equivalents in the eyes of the SEC.
And, as former SEC Director William Hinman greenlit both Ether and Bitcoin, Ripple assumed the same for XRP. It follows that without fair notice otherwise, the firm was unaware of breaching applicable securities law.
Regarding the latest bombshell admission by the SEC, by stating they refused to clarify XRP’s legal status before litigation, they have effectively played into the fair notice defense by conceding no fair notice was given.
However, that alone is not a cut and shut case as Ripple will still need to demonstrate XRP wasn’t sold in a way consistent with a securities offering.
The SEC Demonstrates “Regulation Via Litigation” With Coinbase
Wednesday saw Coinbase CEO Brian Armstrong tweet about his dealings with the SEC over his platform’s Lend program.
Armstrong said the Commission considered the program a security and threatened to sue if they proceed with launching the new feature. What’s worse, Armstrong said the agency refused to explain how they came to that determination.
Billionaire investor Mark Cuban panned the SEC response by labeled it “Regulation via Litigation.” He advised Armstrong to “go on the offensive.”
In an amusing take on this, Ripple CEO Brad Garlinghouse responded to Armstrong by tweeting a meme from the Die Hard movie captioned with “welcome to the party, pal.”