Wealth relevant to penalty, SEC says in Ripple financials squabble

New York Southern District Court Judge Sarah Netburn has received the latest installment in the war of letters between Ripple Labs and the United States Securities and Exchange Commission. At issue are Ripple’s financials and institutional sales contracts, which the SEC wants to see in hopes that it will lend weight to its continuing enforcement action.

The SEC addressed a letter to Judge Netburn on Jan. 11 asking for an order to compel Ripple to produce its financial statements for 2022 and 2023 and Ripple’s contracts for institutional sales since the agency filed suit against it in late 2020. Judge Analisa Torres ruled in a summary judgment in July that institutional sales of XRP (XRP) meet the Howey test and constitute securities sales.

Ripple responded to the SEC request with a letter to Judge Netburn on Jan. 19, arguing that the discovery phase of the proceedings ended in August 2021 and its conduct since the filing of the suit was irrelevant to the case. Furthermore, its financial condition was also irrelevant since it did not intend to argue that it could not pay penalties.

I said 4 days ago that the SEC needed to show Judge Torres that ordering discovery of the post complaint contracts will not lead to a mini-trial of the status of post contract sales as Ripple argues. This is an extract from the SEC’s just filed Response courtesy of @FilanLaw who… https://t.co/qV6XhVVdZw pic.twitter.com/ZHTZDnG83u

— bill morgan (@Belisarius2020) January 24, 2024

Related: Ripple’s legal chief unveils SEC’s XRP settlement offer before 2020 lawsuit

The SEC has countered in a letter dated Jan. 23 that Ripple “does not even claim that it would be prejudiced by producing its recent financial statements,” and cited a previous decision that:

“In calculating the size of a penalty necessary to deter misconduct, the extent of a defendant’s wealth is a relevant consideration.”

⚖️Unpacking the SEC's reply to #Ripple⚖️(#5 will be discussed!)The SEC wants 3 things:1) Audited financial statements for '22 & '23 2) All post-complaint contracts for #XRP sales3) The XRP Institutional Sales proceeds received after the complaint1/7https://t.co/A6Qoj7pruZ

— WrathofKahneman (@WKahneman) January 24, 2024

The letter continued that Judge Torres left open the possibility of further discovery actions. Per the SEC, Ripple’s financial standing and its post-complaint conduct are indeed relevant as the Securities Act (presumably of 1933) “specifically contemplates injunctions when a violation is ‘about to’ occur” and will help to determine the likelihood of a reoccurrence of violations. Moreover, because of the definition of a sale, post-complaint order fulfillment could affect the size of the disgorgement.

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