Ripple Labs, a technology firm currently embroiled in a legal battle with the United States Securities and Exchange Commission (SEC), has suffered another setback as the SEC claims that a recent court judgment has further weakened Ripple’s key defense. The SEC highlighted a judge’s opinion in a separate enforcement action it won against another firm, Commonwealth Equity Services, arguing that the longstanding court precedent provides sufficient “fair notice” and applies to Ripple’s case as well.
Ripple has been relying on the defense that the SEC failed to provide it with fair notice before suing it for securities fraud in December 2020. This defense, however, has been challenged by legal experts such as John E Deaton, who believes that it only applies if the judge determines that Ripple’s XRP token was security at any time between 2013 and now.
Deaton suggests that Ripple’s best chance lies in convincing the judge that XRP is not a security based on the Howey test, a precedent set by the Supreme Court to determine what constitutes a security.
The SEC contends that Ripple is given fair notice under the Howey test precedent
While some observers, including crypto exchange Coinbase, believe that Ripple’s fair notice defense is a strong argument, the recent court judgment in the SEC’s favor against Commonwealth Equity Services is seen as additional authority for rejecting XRP’s defense. The SEC asserts that the Howey test precedent provides Ripple with fair notice, just as it did in the Commonwealth case.
The ongoing legal battle between XRP and the SEC has been closely watched by the cryptocurrency community, as it has significant implications for the regulatory landscape of digital assets. XRP’s fair notice defense, which was seen as a potentially winning strategy by some, may have been weakened by the recent court judgment cited by the SEC.
The outcome of the case will likely have a significant impact on how digital assets are regulated in the future, and the firm’s success in convincing the judge that XRP is not a security based on the Howey test may be crucial to its defense.
