Is the SEC ‘triply incorrect’ regarding its newest filing in the XRP lawsuit?

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The continuing action initiated by the US Securities and Exchange Commission against Ripple Labs is already highly active, with a slew of motions, oppositions, and answers filling the court in recent weeks. The court presided over by Judge Netburn will now have to deal with another another legal document — a sur-reply to the SEC’s own reply in support of its move to invalidate Ripple’s Fourth Affirmative Defense.

What is a sur-reply though? According to US Legal, it is merely an additional reply to a motion filed after the said motion has been fully briefed. In the present case, the defendants have requested leave to file a sur-reply by citing the “new arguments” raised by the SEC in its response dated 27 May.

What are these new arguments, however? According to Ripple, the regulatory agency has relied on a report by Cornerstone Research in the said reply to assert that the defendants’ fair notice defense fails. The report in question, the SEC had argued, highlighted how the agency had “brought more than seventy cases that subjected other digital assets to the application of federal securities laws.” In doing so, the plaintiff had asked the court to take judicial notice of the same.

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According to Ripple’s proposed sur-reply, however,

“All of that is in support of an inappropriately premature request for this Court to conclude, as a factual matter, that market participants had fair notice that XRP would be considered a security.”

It is important noting here that the Cornerstone Research study was first disseminated in May 2021, far after the defendants had submitted their rebuttal brief.

In the aforementioned filing, Ripple Labs said that the SEC’s reply brief “continues to ignore the legal standards applicable to motions to strike,” adding that “the SEC is triply wrong.”

According to the defendants, the Court should dismiss the report and deny the SEC’s motion for judicial notice because a) it is not a public document and b) the SEC has made no attempt to demonstrate the report’s complete veracity.

Furthermore, Ripple claimed that the SEC’s depiction of previous enforcement proceedings filed years before it was accused was “misleading.” In a response branded “brutal” by attorney James Filan, the blockchain business pointed out that, while 37 of the 75 instances highlighted did not include the sale of digital assets at all, the remaining cases were all in the context of an ICO.

“The SEC has never before this case asserted that a sale of digital assets outside the context of an ICO constituted an offer or sale of securities….. Not one of these cases alleged a violation of Section 5’s registration requirements for a sale of digital assets outside the context of an IPO.”

The proposed sur-reply added,

“SEC’s established pattern of asserting Section 5 violations only in the context of ICOs, and not in the context of already-established digital assets, would have given comfort to a reasonable person that XRP was not a security and that its sales did not require registration.”

The Cornerstone Research report, therefore, supports Ripple, not the SEC, the defendants concluded.

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