Stuart Alderoty, the Chief Legal Officer of Ripple, has shed light on the recent legal setback faced by the U.S. Securities and Exchange Commission (SEC), which could have significant implications for the ongoing Ripple lawsuit.
The SEC’s defeat came in its lawsuit against Aaron Govil, as the Second Circuit Court of Appeals refused to review its decision in the case. The court ruling stated that the SEC cannot demand disgorgement from an issuer or seller if the buyer did not suffer any financial losses.
It is worth noting that the Second Circuit initially issued this decision last year. Unsatisfied with the outcome, the SEC filed a notice of appeal to overturn the ruling. However, the court upheld its previous decision and rejected the SEC’s petition for review. Alderoty commented on the SEC’s repeated losses in legal battles.
The Second Circuit’s stance, which asserts that the SEC cannot seek substantial disgorgement without proving that investors incurred financial losses, could have implications for the ongoing Ripple lawsuit. The SEC is seeking nearly $2 billion in penalties and fines from Ripple for violating federal securities laws through the sale of XRP to institutional investors.
As Ripple prepares to submit its opposition to the SEC’s brief on remedies by April 22, the company could potentially use the Govil decision to strengthen its defense and persuade Judge Analisa Torres not to grant the SEC’s request.
If Judge Torres agrees with Ripple’s position, the central issue would be whether investors suffered financial losses by purchasing XRP. The remedy stage of the Ripple lawsuit focuses on Ripple’s institutional sales of XRP. Therefore, if Ripple is ordered to pay disgorgement based on the Govil decision, the company will only be liable to institutional buyers who acquired XRP at a price higher than the current market value.
At the time of writing, XRP is trading at $0.5977. The SEC’s original complaint alleged that Ripple engaged in illegal sales of XRP from 2013 to 2020. During most of this period, XRP’s price was below the current value of $0.5977, but it reached various highs during market peaks, including an all-time high of $3.31 in January 2018.
It is important to note that the SEC’s complaint solely focused on Ripple’s failure to register its sales with the SEC and did not argue that institutional investors suffered losses.
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