SEC v. Ripple Labs, Inc., Court Filing, retrieved on August 05, 2024, is part of HackerNoon’s Legal PDF Series. You can jump to any part of this filing here. This part is 1 of 5.
Plaintiff, the Securities and Exchange Commission (the “SEC”), brings this action against Defendant, Ripple Labs, Inc. (“Ripple”), alleging that Ripple engaged in the unlawful offer and sale of securities in violation of Section 5 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77e(a), (c). Am. Compl. ¶¶ 9, 430–35, ECF No. 46. On July 13, 2023, the Court granted in part and denied in part the parties’ cross-motions for summary judgment (the “Order”). Order, ECF No. 874; see SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308 (S.D.N.Y. 2023), motion to certify appeal denied, 697 F. Supp. 3d 126 (S.D.N.Y. 2023).
Now before the Court is the SEC’s motion for remedies and the entry of final judgment. [1] SEC Mot., ECF No. 948; SEC Mem., ECF No. 949; Proposed Judgment, ECF No. 950. For the reasons stated below, the SEC’s motion is GRANTED IN PART and DENIED IN PART.
BACKGROUND[2]
This case involves Defendants’ offer and sale of XRP, the native digital token of the XRP Ledger, a cryptographically secured ledger or “blockchain.” Order at 2. On December 22, 2020, the SEC commenced this action. See Complaint, ECF No. 1. An amended complaint was filed on February 18, 2021. ECF No. 46. As relevant here, the SEC alleged that Ripple engaged in three categories of unregistered XRP offers and sales:
(1) Institutional Sales[3] under written contracts for which it received $728 million;
(2) Programmatic Sales on digital asset exchanges for which it received $757 million; and
(3) Other Distributions under written contracts for which it recorded $609 million in “consideration other than cash.”
Id. at 15–16; see id. at 4–5. The SEC also alleged that Bradley Garlinghouse and Christian A. Larsen, two of Ripple’s senior leaders, engaged in unregistered individual XRP sales from which they received at least $450 million and $150 million, respectively. Id. at 5, 16.
Under Section 5 of the Securities Act, it is “unlawful for any person, directly or indirectly, . . . to offer to sell, offer to buy or purchase[,] or sell” a “security” unless a registration statement is in effect or has been filed with the SEC as to the offer and sale of such security to the public. 15 U.S.C. §§ 77e(a), (c), (e). To prove a violation of Section 5, the SEC must show: (1) that no registration statement was filed or in effect as to the transaction, and (2) that the defendant directly or indirectly offered to sell or sold the securities (3) through interstate commerce. See SEC v. Cavanagh, 445 F.3d 105, 111 n.13 (2d Cir. 2006).
At summary judgment, the Court—applying the Supreme Court’s test set forth in SEC v. W.J. Howey Co., 328 U.S. 293 (1946)—concluded that Ripple’s Institutional Sales constituted offers or sales of investment contracts, but that Ripple’s Programmatic Sales and Other Distributions did not. Order at 30. The Court also held that Larsen’s and Garlinghouse’s individual sales were not offers or sales of investment contracts for “substantially the same reasons” stated in the Court’s analysis of Ripple’s Programmatic Sales. Id. at 27–28.
The SEC subsequently moved to certify for interlocutory appeal the Court’s holdings on Programmatic Sales and Other Distributions. ECF No. 892. On October 3, 2023, the Court denied the SEC’s motion and set for trial the SEC’s claim that Larsen and Garlinghouse aided and abetted Ripple’s violations of Section 5 with regard to the Institutional Sales. ECF No. 917. By stipulation dated October 19, 2023, the SEC dismissed its pending claims against Larsen and Garlinghouse, obviating the need for a trial. ECF No. 921.
Now before the Court is the SEC’s motion for remedies and entry of judgment on Ripple’s violations of Section 5 as to the Institutional Sales. The SEC seeks a final judgment against Ripple that (1) permanently enjoins it from future violations of Section 5 and from conducting an unregistered offering of XRP in Institutional Sales; (2) orders Ripple to pay $876,308,712 in disgorgement and $198,150,940 in prejudgment interest; and (3) orders Ripple to pay an $876,308,712 civil penalty. SEC Mem. at 1. Ripple contends that an injunction and disgorgement are unwarranted, and that any civil penalty should not exceed $10 million. See Ripple Opp., ECF No. 955.
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[1] Ripple has also moved to seal certain documents filed in connection with the SEC’s motion. ECF No. 963; see ECF Nos. 964–68. The Court will address the sealing requests by separate order.
[2] The Court presumes familiarity with the facts and procedural history of this matter as detailed in prior orders, see Order at 2–9, and, therefore, only summarizes those facts necessary for its decision here.
[3] Capitalized terms not otherwise defined herein have the meanings set forth in the Order.
