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Lawyer Discusses Ripple’s Answer to SEC’s Complaint: SURPRISE!

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TRANSCRIPT OF VLOG:

Hello and welcome to the late night Legal Briefs – crypto edition.  Today Ripple filed its long-awaited Answer to the SEC lawsuit and there were some very interesting things in there and ONE BIG SHOCKER so let’s GET TO IT.

 So I was preparing to do a vlog tomorrow on the GameSpot and DogeCoin craziness when out of the blue this afternoon I received the notification that the Ripple Response to the SEC had been filed and 4 hours and 2 cups of coffee later, walla, here I am with a microphone and camera.

Quick disclaimer: Do not take anything I say as legal advice.  I am working for praise in the comments section – the sweetest type of pay – but not something you want to rely on.  If you want legal advice – ask this guy.  He looks sharp – tell me his name in the comments if you can.

That business out of the way let’s look at the Answer to the lawsuit  (PAGE 1)  First, Ripple DID file an Answer and that in and of itself is telling.  When you are sued you can either Answer the allegations and respond to them OR you can file a Motion to Dismiss.  A Motion to Dismiss simply says that the Lawsuit is deficient in some way or that even if the allegations in the lawsuit were true, the lawsuit still fails.  And I have looked at some of the other actions that Ripple has been involved in and they have filed Motions to Dismiss in the past but that is usually a hassle or delay tactic – I often get Motions to Dismiss from insurance companies because they want to drag things out and save money.  Ripple is NOT taking that approach here so that clues me in that they want this litigation to move forward quickly – which is good for XRP in general.

The second thing I noticed right away is that the Answer is very well done – no surprise given the caliber of lawyers they’ve hired.  The lawyers have obviously researched the Judge assigned to the case (like I have) and know that she is 61 years old, very smart – Harvard graduate – but that she does NOT have a technical background, so they keep the language clear of technical jargon. 

Listen to this which to me is the best part of the Preliminary Statement and addresses an issue that the SEC made a BIG deal of in the lawsuit.  (PAGE 5).  Paragraph 10 says:  “Ripple holds a large percentage of XRP, but that alone does not and cannot render it an investment contract.  Many entities own large amounts of commodities… Exxon holds large quantities of oil, De Beers owns large quantities of diamonds…Such large commodity holders inevitably have interests aligned with purchasers of the underlying assets but that does not convert the asset into a security.”   The analogy is perfect – I loved this and it deals well with the allegation all over the SEC lawsuit that somehow Ripple holding a lot of the XRP somehow makes it a security.  One point to Ripple.

But I really think that Ripples best legal argument comes in paragraph 13 where it takes on the Howey test (PARAGRAPH 13) and says “…XRP categorically differs from the various business arrangements that Congress authorized the SEC to regulate – all of which, UNLIKE Ripple, involve “schemes devised by those who seek to use the money of others on the promise of profits.” 

And then , hidden at the end, where ALL THE BEST STUFF is, I think, is the bomb that Ripple is waiting to drop – …”Ripple never held an ICO, never offered future tokens to raise money, and HAS NO CONTRACTS WITH THE VAST MAJORITY of XRP Holders.”  Boom – how can you have an “investment contract” when you don’t have contracts?  I think that’s Ripple’s strongest argument and… it’s a good one.

If the facts and evidence bear that argument out look at what the SEC has to argue – the SEC has to argue that you and me, current owners of XRP somehow have a contract with Ripple for it to work for us, even though the XRP coin we currently own, might have been owned by a hundred different businesses and people before we bought it.  Staying with Ripple’s analogy, that’s like saying somehow my wife has a contract with the diamond mine in Africa that dug up the diamond that’s on her ring.  Good luck SEC lawyers –  My wife’s ring is cubic zirconia (just kidding)

And the last thing to look at and VERY important is paragraph 15 (PARAGRAPH 15) listen to this – I’m paraphrasing – “The Complaint harms not only Ripple but also the millions of XRP holders.  It is ESPECIALLY IMPORTANT that the Court RAPIDLY determine that Ripple’s CURRENT distribution of XRP are not Investment Contracts and QUICKLY provide clarity to the market.”  I’ll tell you why I was impressed by this paragraph, and I think this must’ve come from Brad or someone at Ripple because it’s not a “lawyering” type thing but this paragraph really shows an empathy, a concern for the XRP community and I’m glad someone got that in.

Now, starting on page 8 (PAGE 8) understand that in Answering a lawsuit you are responding to allegations one by one.  You are going to see that Ripple admits or denies each and every allegation – for example Ripple denies succinctly the allegation in Paragraph 2 and when I go through an Answer I circle every denial because those will be the facts and evidence that will be fought over.  And like is common in legal pleadings, the most important things can be the smallest – look at Paragraph 9 and 10. (PARAGRAPH (9/10).  This is the heart of the matter where Ripple denies that it “ever offered or sold investment contracts in its distribution of XRP” 

I want to take you to the end of the Answer where the really surprising stuff is but really briefly I want to point out what some of the best “lawyering” on Ripple’s behalf is.  Along with the Answer, Ripple filed a request under the Federal Sunshine law for documents pertaining to the SEC’s informal opinion that Ethereum is not a security.  Here’s a story about it:  https://www.bitcoininsider.org/article/103614/ripple-demands-know-why-ether-isnt-security-xrp-defense-gets-desperate

I would just kindly disagree with the headline that this is a desperation move – this is GENIUS.  As I told you in my last vlog – if you listen to the SEC’s legal arguments, Ethereum at one point was definitely selling securities as well.  So why the proclamation in 2018 that Ethereum didn’t sell securities?  Ripple has seen a chink in the armor and is going for it.  Who knows what they’ll find but this issue will put the SEC on its backfoot – very subtle but very good Ripple.  Make the SEC defend ITSELF for once.

Okay SO, there’s about 5 other things I thought were interesting in here but I want to get to the bombshell for me, something super surprising before you all get bored with lawyer geek stuff and, like usual, the big bombshell is hidden in the middle of nowhere in two sentences.

At the end of the Answer are Affirmative Defenses and Ripple pleads seven of them.  An Affirmative Defense is kinda like counterpunches thrown by the Defendant.  An Affirmative Defense raises issues that the DEFENDANT wants to have heard or ruled on.  The tough thing about Affirmative Defenses is that the Defendant has the burden to prove them.  One example is if you are sued for assault and battery – you might raise an Affirmative Defense that you hit the other person as self defense so you are not liable.  That’s a common affirmative defense.

Now, recall I made a big deal in a prior Vlog that the SEC didn’t sue for a Declaratory Judgment that XRP was a security – the SEC could have asked for a ruling on that but didn’t – it only asked for monetary damages and relief that would effect the escrowed XRP.

Well, take a look at Ripples 2nd Affirmative Defense (PAGE 90):

XRP IS NOT A SECURITY.  “Ripple did not violate Section 5 of the Securities Act because XRP is not a security… and therefore no registration was required with the sale of XRP.”

So, in effect, RIPPLE ITSEFL HAS REQUESTED THE COMPLETE RULING that the SEC did not – Ripple is saying they want a FULL  determination from the Court that XRP is not a Security.  Ripple could’ve “escaped” this lawsuit with no such finding if it had wanted and here it is raising the MAJOR issue itself!

This blew my mind so, I drank that 2nd cup of coffee and had to revamp my thinking about this lawsuit ENTIRELY after seeing this.  You see, I honestly thought, I assumed really , that Ripple would tip-toe into defending the lawsuit – looking for a quick settlement.  But I apparently underestimated Ripple’s belief in its position.  This Affirmative Defense shows that RIPPLE truly believes it can and will win, not just on certain offerings of XRP but ALL of them. When  I read that Affirmative Defense I was like Morpheus in the Matrix.

Ripple is beginning to believe it can take this case all the way and win.  And that changes a lot of things – some better, maybe some worse, because Ripple just made this a winner takes all game.

So, you are probably thinking – very good very good – but what’s this mean for me and my XRP? And I’m here to tell you that no one can tell you if Ripple will win and they’re lying if they do. But the horses have broken from the gate and Ripple just shoulder-checked the SEC in a big way and grabbed the inside position.  But remember, we haven’t even entered the first turn yet.  Patience is a must.

But what I CAN tell you now is that at the end of THIS race, XRP will be completely in the clear one way or another.  It’s a strong and promising opening statement.  Thanks for watching and good night.

Jeremy Hogan
Jeremy Hogan
Attorney Jeremy Hogan is a partner at Hogan & Hogan.