A landmark decision by the United States District Court for the Southern District of New York has marked a pivotal turn in the ongoing legal confrontation between the Securities and Exchange Commission (SEC) and Ripple Labs. The court ruled in favor of the SEC, compelling Ripple to disclose detailed financial records.
Magistrate Judge Sarah Netburn ordered Ripple to provide financial statements for the years 2022-2023 and answer queries about the institutional sales of XRP after the complaint was lodged. This decision came despite Ripple’s contention that the SEC’s demands were not timely and were previously deemed inadmissible by a June 2021 court ruling. However, Judge Netburn clarified that the previous denial pertained specifically to “expert merits discovery” and did not apply to the current requests.
Judge Netburn further emphasized the relevance of Ripple’s post-complaint behavior, particularly through contracts and sales proceeds, in shaping the court’s decision on necessary legal actions. By agreeing that “the purchase of a security occurs when the parties to the transaction are committed to one another,” she affirmed the SEC’s arguments. As such, Ripple’s argument that such information was irrelevant and confidential was overridden.
The SEC’s push for transparency extends to Ripple’s conduct after the initial complaint, aiming to ascertain whether Ripple continued to violate Section 5 of the Securities Act. The information on institutional XRP sales post-complaint is particularly relevant, as it could impact the calculation of disgorgement, a legal remedy designed to confiscate ill-gotten gains.
As the legal proceedings progress, the SEC has been tasked with demonstrating Ripple’s continued legal violations to justify an injunction. The case is expected to set a precedent for how digital assets are regulated and enforced by securities laws in the United States.
Meanwhile, Amicus curiae attorney John E. Deaton recently provided insights on the case. Deaton suggested that Ripple could argue for exemptions for many of its institutional sales, possibly reducing the severity of any penalty. However, he underscored the contentious nature of the proceedings and expressed skepticism about an imminent settlement.
