Should Ripple’s “state of mind” factor in the XRP lawsuit?

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The pending litigation brought by the United States Securities and Exchange Commission against Ripple Labs and its executives Garlinghouse and Larsen has been fiercely debated in recent weeks and months, with each party firing salvo after salvo at the other. Friday’s teleconference, presided over by Judge Sarah Netburn, was the latest in the series, with the topic at hand being the SEC’s motion to pierce the attorney/client privilege between Ripple and its attorneys.

There were a few notable exchanges during the same, most prominently the SEC’s citation of Scott v. Chipotle as precedent, a case Judge Netburn herself ruled on. However, several, including famous attorney Jeremy Hogan, believe that this “smart” manoeuvre allowed the Court to call into question the plaintiff’s interpretation of the objectivity inherent with a “Fair Notice” defence.

Alas, that wasn’t all. In suggesting that Ripple is attempting to plead a Good Faith defense and call it Fair Notice, the SEC also contended that the defendants’ state of mind is relevant to the case. Citing a passage from Ripple’s letter requesting the court to compel the SEC to turn over internal documents, the counsel argued,

“If there is confusion in the minds of market participants, the SEC cannot as a matter of law prevail. And so they have essentially — they have directly inserted their state of mind as a part of their defense.”

The defendants have “all but admitted” their state of mind, the agency went on to claim, adding that,

“So whether one couches a defense as objective or subjective doesn’t ultimately matter because they have injected their state of mind into the case, and that’s the principle that controls.”

In several respects, the SEC’s new statement is unusual, particularly given that the blockchain firm’s primary defence and contention is that it is the “conduct of the SEC and of the market that created a lack of clarity on the question of how XRP should be regulated.” Simply stated, while the defendants have tried to highlight the plaintiff’s state of mind and behaviour, the SEC is attempting to reverse engineer it.

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This was a sentiment shared by John Deaton too, the attorney representing XRP Holders in their motion to intervene. According to Deaton,

“It is not entirely clear to me still, why Ripple’s state of mind on that question is relevant.”

Others in the community were a little more direct and straightforward, with one user stating,

“Surely it’s the state of mind of the SEC that should be questioned? Not just with this case…”

The SEC has actually attempted to turn the tables by calling the defendants’ mental states into question in what is ostensibly a ‘objective’ defence. It is worth noting here that whether Judge Netbutn will accept the SEC’s arguments remains a difficult question to address, with others, such as Jeremy Hogan, predicting that the SEC’s motion will be rejected shortly.

If the motion is dismissed, Ripple could score yet another win in the current case.

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