Matt Stankiewicz, Managing Counsel at The Volkov Law Group, joins us for continued updates regarding the SEC enforcement action against Ripple. Matt can be reached at [email protected].

On Monday, Ripple Labs, Inc.; Brad Garlinghouse, CEO; Christian Larsen, board chairman; and the U.S. Securities and Exchange Commission (“SEC”) filed a joint letter with Judge Analisa Torres in the Southern District of New York.  While this letter is a general pre-trial filing to keep the judge abreast as to what’s going on between the parties, it sheds light on their respective mindsets.  It also informs us, the captivated audience, of what to expect in the coming months.

The biggest takeaway is that the sides are not anywhere near a settlement agreement at this point.  The parties note that they “do not believe there is a prospect for settlement at this time.”  That’s lawyer speak for ‘it ain’t happening.’  This is not too surprising given the proceedings are still at such an early stage.  It was always unlikely that the two would reach a settlement agreement so quickly.  I wouldn’t expect there to be much movement on settlement talks at least until each party issues a response to the complaint.  At this point, both sides are surely confident in their positions, and Ripple is pushing for “rapid discovery schedule” in order to bring a swift summary judgment motion.  Settlement discussions are unlikely to see much movement until the parties see how the judge responds to these motions.

As for the long-term outlook at a settlement, I won’t hold my breath.  In normal circumstances, I think that Ripple would ultimately capitulate and reach a settlement early.  Based on these early filings, I believe the SEC has a fairly solid case here and have some established precedent following a ruling in their favor against Kik Interactive Inc. early in 2020.  That said, Ripple has a major interest – and most importantly, the resources – in pushing this case to the very end.  A settlement could ultimately prevent the XRP coin from trading within the United States, and Ripple willy surely fight tooth and nail to prevent that from happening.

The circumstances around this case is a little unique as well, as the outgoing Trump Administration SEC initially brought the suit.  Less than a month after the complaint was filed, the Biden Administration took over and brought significant turnover to the SEC.  Ripple explained in the letter that much of its initial settlement discussions took place with directors that are no longer with the agency.  I doubt much progress was made, but regardless, everyone is back at square one now.

Outside of the settlement discussions, the letter also highlights a number of sticking points between the two sides.  Most interesting to me is the SEC’s push to obtain communications that Ripple considers to be covered by attorney-client-privilege.  The SEC is looking to obtain any communications and/or legal memos prepared by counsel.  The SEC notes that these documents and communications are “central to the parties’ claims and defenses.”  The SEC has specifically highlighted two memos from counsel that review the regulatory status of XRP and apparently warn that Ripple’s XRP coin offering could be considered an “investment contract.”  Ripple has understandably balked at these claims, and the SEC notes they will consider a motion to compel. 

The SEC is currently preparing an amended complaint, which it expects to file by the end of the week.  Garlinghouse and Larsen noted they are waiting for the amended complaint before filing their respective responses.  We’ll continue to monitor this case going forward.