The Ripple CLO Stuart Alderoty highlights the SEC’s latest legal woes that could have far-reaching implications for the ongoing Ripple lawsuit.
Court Denies SEC Petition
Notably, the U.S. SEC’s recent defeat came up in the commission’s lawsuit against Aaron Govil. In a recent development, the Second Circuit Court of Appeals declined to review its decision in the Govil case. The court decision held that the SEC cannot claim disgorgement from an issuer or seller if the buyer did not incur economic losses.
It is noteworthy that the Second Circuit first issued the decision last year. Not satisfied with the decision, the regulatory agency filed a notice of appeal to reverse the ruling.
However, the court affirmed its previous decision and subsequently denied the SEC’s petition for review. Commenting, Alderoty pointed out that the SEC has continued to lose, especially in legal tussles.
The SEC continues to lose. The Second Circuit Court of Appeals refused to reconsider their decision in Govil which held that if a buyer suffers no financial loss, the SEC is not entitled to disgorgement from the seller. https://t.co/AOEHcyiajo pic.twitter.com/TPCbmAcAmY
— Stuart Alderoty (@s_alderoty) April 11, 2024
Implication of Govil Decision on Ripple Lawsuit
The Second Circuit’s position, which holds that the SEC cannot request a massive disgorgement without first proving investors suffered financial losses, could be relevant to the ongoing Ripple lawsuit.
Recall that the SEC is seeking nearly $2 billion in penalties and fines from Ripple following the company’s violation of federal securities laws via its institutional sales of XRP.
With Ripple expected to file its opposition to the SEC’s remedies-related brief by April 22, the crypto payments company could leverage the Govil decision to bolster its defense to convince Judge Analisa Torres not to grant the commission’s request.
Should Judge Torres agree with Ripple’s position, the bone of contention would be whether investors suffered financial losses by acquiring XRP.
The remedy stage of the Ripple lawsuit revolves around the company’s institutional sales of XRP. As a result, if Ripple is ordered to pay disgorgement according to the Govil decision, the crypto payments company will only focus on institutional buyers who bought XRP above the current price.
At the time of writing this line, XRP changed hands at $0.5977. The SEC’s original complaint alleged that Ripple engaged in unlawful sales of XRP between 2013 and 2020. For most of this period, XRP’s price traded below the current value of $0.5977, but traded at various highs during market peaks, including the ATH of $3.31 in January 2018.
However, it bears mentioning that the SEC’s complaint bothered solely on Ripple’s inability to register their sales with the SEC, and not based on an argument that the institutional investors suffered losses.