The filing of the complaint, late in the term of former SEC Chairman Jay Clayton, had a devastating effect on Ripple, leading to a drop in the market value of XRP in December 2020. Alderoty described the lawsuit as “an SEC carpet” that destroyed $15 billion worth of XRP coins “on the day the lawsuit was filed and hurt the very people the SEC is supposed to protect.” Both parties have since filed motions to appeal the opposing party`s summary judgment. The legal teams reiterated their positions on whether XRP should be classified as a security. Matthew Solomon, partner at Cleary Gottlieb Steen & Hamilton, and lead attorney Alexander Janghorbani — another pair of former SEC litigators — represent Garlinghouse in the SEC case, while Larsen has retained a legal team led by Michael Gertzman and Martin Flumembaum of Paul, Weiss, Rifkind, Wharton & Garrison. Instead of going to court, the SEC settles most of its lawsuits. Individual crypto companies submit to SEC requirements and pay penalties to be released. Unlike many others, Ripple went all the way and got involved in a legal brawl. In its lawsuit at the end of December, the SEC claimed that XRP could be classified as a security because it was used to fund Ripple`s platform, which facilitates money transfers for retailers. The platform`s executives have also enriched themselves from the sale of XRP. White and Ceresney, a partner couple of Debevoise & Plimpton, are part of the legal team defending Ripple. One of them is Michael Kellogg, founding partner of Kellogg, Hansen, Todd, Figel & Frederick, whose notable clients include the Crown Prince of Saudi Arabia.
The amicus curiae brief argues that the SEC did not provide timely guidance on the application of Howey “or any other legal standard to a secondary transaction in a digital asset that was previously the subject of an investment treaty.” In light of the above, the Chamber asked the Court to rely on the principles of the Lummis-Gillibrand Act when it decided to “clarify the characterization of digital assets that are the subject of an investment contract, or to leave such a decision to the legislature, as it continues to make progress in establishing clear guidelines for the appropriate legal classification of digital assets”. Garlinghouse acknowledged the difficulty of predicting lawsuits, saying he hoped to have Ripple`s dispute with the SEC resolved by early 2023. The board argues that “as long as the underlying asset does not include financial interests such as statutory debt or equity rights, digital assets are considered commodities.” He noted that Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), author of bipartisan legislation regulating digital assets, shared this view. On February 23, 2022, the letter was submitted to the court, stating that the class action would begin on August 26, 2022, but the parties agreed to begin on November 18, 2022 to prepare for the factual and legal issues. The SEC argues that XRP is essentially an “illegal offering of securities” and that Ripple has not provided “the type of financial and management information” required by law. The agency said Garlinghouse, who was named in the lawsuit with co-founder Chris Larsen, had “repeatedly said that he has been XRP for a very long time, meaning he was in an important position that he believed would increase in value without disclosing his XRP sales.” Torres also agreed to briefings from companies that say they rely on XRP technology, a cryptocurrency industry group and a nonprofit legal organization that says it represents clients against the SEC`s “overreach.” A crypto industry lobby wants the judge in a high-profile digital asset case to examine Congress` efforts to create a new legal framework for the emerging industry before moving forward. The lengthy court battle has been frustrating for Ripple, which has accused the SEC of legal bullying and delaying tactics. Alderoty suggested that Ripple had no choice but to accept the expanded schedule.
Cryptocurrency exchange Coinbase Inc has come out in favor of Ripple in the blockchain company`s legal dispute with the United States. The Securities and Exchange Commission, which joins a growing number of cryptocurrency advocates, is filing briefs in this case. It`s been more than a year since the SEC stunned the tech world by suing Ripple, triggering crypto`s most-watched legal battle. For crypto skeptics and critics, who include prominent figures such as Senator Elizabeth Warren and a number of legal and financial experts, the Ripple lawsuit aims to curb a rapidly spreading trend that could seriously undermine laws protecting investors and the financial system. However, Ripple Labs president Chris Larsen and Garlinghouse claimed the sales were legal. Their reasoning was based on the so-called Howey test of a U.S. court case, which determines whether an asset is a security. Both Ripple executives said the company spent a lot of money to make this happen. Garlinghouse said the $100 million figure includes legal invoices, as well as investigative and expert witness costs incurred during SEC litigation and the years leading up to the enforcement action.
Lobbying costs are separate, the CEO said. Alderoty, who grew up in Brooklyn and now lives on the Jersey coast, joined Ripple in 2019 as a leading attorney. He said he gave up “30 years of networking” in more traditional legal roles on Wall Street to try something new. Stu Alderoty, Ripple`s general counsel, told Capital.com: “The filings show that the SEC is acting outside its legal limits. The SEC is not trying to enforce the law — it is trying to reshape it in the hope that it can unduly expand its jurisdiction. Alderoty, a 63-year-old lawyer, has spent most of his career working for traditional financial players. As general counsel of payments company Ripple Labs Inc., he is now at the center of a legal battle and public relations battle against the SEC and its chairman Gary Gensler. Since XRP tokens were used to fund Ripple`s platform, which facilitates money transfers for retailers, a civil lawsuit was filed in late December 2020. The sale of XRP has also enriched the management of the platform.
However, it is important to note that Bitcoin (BTC) is not a security, according to the SEC. You can read the legal definition of securities here. The “Hinman documents” remain confidential, but Alderoty said he felt safer after receiving Ripple`s legal arguments. The Ripple case has far-reaching legal consequences for the cryptocurrency industry, which occupies a regulatory gray area in the United States. Alderoty then served as General Counsel at CIT Group Inc. – a financial services company sold to First Citizens BancShares Inc. – and North American General Counsel at HSBC Holdings PLC. He was also a litigator for American Express Co. and LeBoeuf, Lamb, Greene & MacRae, a forerunner of a Manhattan law firm that became famous.
Regulators often try to show the public that they crack down on supposedly bad actors after a financial disaster, said Gary DeWaal, former chair of financial markets and Katten Muchin Rosenman`s regulatory practice. Other crypto-related legal issues in addition to FTX`s demise have emboldened the SEC, he said. Supporters believe that court rulings have so far been in Ripple`s favor. Lawyer Jeremy Hogan, an XRP2 lawyer and US legal advisor, expects the case to be resolved soon. Garlinghouse believes the SEC case will be resolved by April 2022.