A recent court decision further weakens an important defense made by technology company Ripple Labs in its ongoing legal battle with the U.S. Securities and Exchange Commission (SEC), regulators have claimed to a federal judge.
In a letter dated April 11 to U.S. District Judge Analisa Torres, who oversees the SEC vs. Ripple Labs case, the SEC underscored the judge’s opinion in another enforcement action against investment advisory firm Commonwealth Equity Services. In that case, it was believed that long-standing court precedent provided sufficient "fair notice."
The SEC argued that the long-standing Supreme Court precedent that triggered the Howey test used to determine what constitutes a security provided Ripple Labs with fair notice of what a security is, much like the precedent cited in the Commonwealth Case closed. The SEC added that its case with Commonwealth provides “additional authority” to deny Ripple’s fair notice defense. Ripple’s argument that the SEC failed to provide it with fair notice before indicting it for securities fraud in December 2020 is seen as one of its main defenses.
While many observers, such as cryptocurrency exchange Coinbase, believe the defense will prevail, legal experts such as John Deaton disagree. Deaton has previously pointed out that the fair notice defense will only come into play if a judge decides on Ripple’s XRP, A token was a security at any time between 2013 and the present. Deaton believes Ripple Lab's best chance lies in convincing judges that XRP is not a security based on the Howey test.
