SEC Files Supplemental Letter, Calling For Rejection of Ripple’s Fair Notice Defense

SEC Files Supplemental Letter to Support Its Pending Summary Judgment Motion Against Ripple.

The United States Securities and Exchange Commission (SEC) has filed a supplemental authority letter to support its pending summary judgment motion in the ongoing Ripple case. 

In the letter dated yesterday, the securities regulator cited its previous case against Commonwealth Equity Services. According to the SEC, the Commonwealth court ruled that the defendant violated negligence-based provisions of the Investment Advisers Act of 1940 via its non-disclosure of specific conflicts of interest.

Per the SEC, the court also rejected Commonwealth’s defense, alleging that the regulator failed to provide the company with fair notice of the disclosure obligations. Furthermore, it asserts that Ripple followed the Commonwealth’s direction to premise its fair notice defense on the Upton vs. SEC lawsuit.

“The Commonwealth court held that, unlike in Upton, its defendant received fair notice by virtue of 50-year old Supreme Court precedent regarding Advisers Act disclosure obligations,” an excerpt of the SEC’s supplemental letter read. 

SEC Highlights 3 Reasons Why Ripple’s Fair Notice Defense Should Be Rejected

Consequently, the SEC said the Commonwealth court supports its summary judgment motion in the Ripple lawsuit for three major reasons.

Firstly, the SEC claims that the Commonwealth court’s decision that Supreme Court’s previous cases can provide fair notice is similar to its views in the Ripple lawsuit, asserting that Howey and its progeny gave Ripple sufficient fair notice. 

– Advertisement –

Secondly, the Commonwealth case added to the “unbroken chain of district court decisions rejecting fair notice defenses on summary judgment.”

Lastly, the Commonwealth court rejected the defendant’s fair notice defense despite the facts pointing out that the SEC knew the practice at issue for more than two decades. 

Ripple Letter Supporting Its Fair Notice Defense

The SEC’s letter comes more than a month after Ripple filed a supplemental letter supporting its fair notice defense in its case against the securities regulator. For context, Ripple’s fair notice defense pointed to the lack of clear rules for the United States crypto market. 

The blockchain company cited a recent Supreme Court ruling in Bittner v. US, where two Justices relied on the rule of lenity to issue a verdict. 

Notably, the rule of lenity dictates that in situations with unclear rules, the court’s ruling should favor the defendants. In response to Ripple’s defense, the SEC argued that the two Justices’ reliance on the rule of lenity in the Bittner v. US case has no application to Ripple’s fair notice defense. 

According to the SEC, the rule of lenity only applies to a criminal suit and not a civil one like the Ripple case, adding that the rule does not absolve the blockchain company of liability. 

– Advertisement –