Yassin Mobarak, a renowned cryptocurrency expert, speculates that the SEC cannot request $770 million worth of penalty from Ripple if no financial harm was inflicted on investors.
Renowned cryptocurrency expert Yassin Mobarak has made a bold speculation regarding the ongoing SEC v. Ripple legal battle.
SEC v. Govil Lawsuit
Earlier this week, the SEC suffered a major defeat in its case against Aron Govil. In 2021, the SEC charged Govil with engaging in a fraudulent securities scheme through his company, Cemtrex.
Although Govil agreed to pay back the proceeds of the fraud, a district court granted the SEC’s motion for additional disgorgement.
In a recent development, the Second Circuit dismissed the district court’s ruling and remanded the case while instructing the lower court to determine whether Cemtrex’s investors suffered financial damages.
SEC Is On a Losing Streak
Commenting on the decision, Ripple CLO Stuart Alderoty emphasized that the Second Circuit, in the Govil case, held that the securities regulator cannot request a crippling disgorgement without first showing evidence to prove that investors suffered financial harm.
He noted that the SEC is currently on a losing streak as it suffered another defeat earlier in the week. Notably, the Fifth Circuit held that the SEC acted arbitrarily and capriciously in violation of the Administrative Procedure Act (APA).
Another loss this week for the SEC – the streak continues. The 2d Circuit in SEC v Govil held that the SEC can’t ask for a crippling disgorgement award w/o first proving that “investors” suffered actual financial harm. In other words, no harm, no foul.
— Stuart Alderoty (@s_alderoty) November 3, 2023
SEC Can’t Demand $770M Fine
Reacting, Mobarak said the SEC cannot demand $770 million as a fine from Ripple for the company’s XRP institutional sales violation if no harm was inflicted on investors.
Per Mobarak, it is evident that the commission cannot penalize Ripple by attempting to charge substantial penalty fees.
This is significant. The SEC can't ask Ripple to pay $770 million in penalty for institutional sales if no harm has been inflicted on investors.
The SEC has to see the writing on the wall and realize that it will not penalize Ripple drastically through attempting to charge huge… https://t.co/iFPo3FplDz
— Yassin Mobarak ? (@Dizer_YM) November 3, 2023
Upcoming Remedies Briefing
It is worth noting that the penalty stage of the Ripple lawsuit is set to commence soon. This stage will determine the penalty Ripple will pay for violating securities law by selling $770 million worth of XRP to institutional clients.
During the briefing, the SEC could request for the entire $770 million at issue as a fine. However, top legal experts, including Attorney John Deaton, believe Ripple could drastically reduce the penalty by exempting its legitimate business expenses and On-Demand Liquidity (ODL) sales.
Last month, the court set a deadline of November 9 and ordered the parties to propose a briefing for the penalties stage. If the SEC and Ripple fail to agree on a briefing schedule, they shall jointly ask the court to schedule the remedies stage briefing.
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