Ripple v. SEC: Ripple Files Supplemental Letter in Support of Fair Notice Defense

The letter cites a recent U.S. Supreme Court ruling where two justices relied on the rule of lenity for their opinion.

Ripple has filed a supplemental letter in support of its fair notice defense in its legal battle with the United States Securities and Exchange Commission (SEC) over whether XRP is a security. 

Attorney James K. Filan, a seasoned attorney that has continuously provided updates on the case, disclosed this in a tweet yesterday, sharing a copy of the letter. The letter cites a recent U.S. Supreme Court ruling in Bittner v. U.S.

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Notably, in the recent ruling, two of the justices in the majority relied on the rule of lenity in support of their opinion. It dictates that where the law is unclear, the court should rule in a way that best favors the defendant. Citing the opinion of the justices, Ripple writes:

“This opinion strongly supports Defendants’ fair notice defense. As in Bittner, the relevant statutory provisions … provide no discussion specific to the facts of this case. And as in Bittner, many experienced securities law practitioners and industry participants were unable to anticipate the government’s current theory. Accordingly, as in Bittner, ‘the government’s current theory poses a serious fair-notice problem.’“

For context, Ripple’s fair notice defense points to the lack of crypto market rules and former SEC director Bill Hinman’s endorsement of Bitcoin and Ethereum as non-securities as reasons why it could not anticipate the SEC’s enforcement action against Ripple.

Attorney John Deaton, who represents thousands of XRP holders in the case as a friend of the court, has attempted to dispel notions that Ripple is filing this now because they are less confident in their position. The CryptoLaw founder pointed out that the ruling came just four days ago and held potential significance to the Ripple case. 

A lot of people are speculating on why @Ripple would file this now. Some people are saying its b/c Ripple knows it will lose or b/c they’re less confident. It’s a very simple reason why it was filed. The decision is from the Supreme Court and it was handed down only 4 days ago. https://t.co/Rqa3ysboaM

— John E Deaton (@JohnEDeaton1) March 3, 2023

According to Deaton, it could support Ripple’s fair notice defense if Judge Analisa Torres finds that there were times when the blockchain payments firm sold XRP as a security. The attorney noted that the latest Supreme Court ruling strengthened his belief that Ripple would win should the case come before the apex court.

Meanwhile, not all agree that the opinion cited by Ripple in its latest filing can serve as a strong precedent. Marc Fagel, a securities lawyer and former SEC regional director, has described the latest step by the generally brilliant Ripple attorneys as a “risky move.” 

The Stanford lecturer believes that Justice Neil Gorsuch’s inability to get the bulk of the majority to sign on to this opinion made it a questionable and weak precedent. Fagel pointed out that SEC lawyers will likely emphasize this in a potential rebuttal.

It is worth noting that the Ripple case has lasted over two years and is awaiting a court ruling, which Ripple General Counsel Stuart Alderoty has said could come at the end of the month. Crypto proponents believe a Ripple victory would force the SEC to create clear guidelines for the nascent market. On the other hand, Alderoty has noted that Ripple will immediately appeal if the judge rules in favor of the SEC.