Ripple Labs invokes fair notice defense against SEC lawsuit over XRP tokens

Author: Sohrab Khawas

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    Blockchain payment firm Ripple Labs, Inc. is facing a lawsuit filed by the US Securities and Exchange Commission (SEC) alleging its XRP tokens were unregistered securities. In a recent court filing, Ripple Labs argued that the recent Supreme Court verdict in Bittner v. United States supports their fair notice defense against the SEC.

    Fair notice defense supported by Supreme Court verdict

    In their filing, Ripple Labs stated that the Bittner verdict, which emphasized the Due Process Clause’s mandate for fair notice, supports their assertion that the SEC failed to provide unambiguous guidance on how to comply with securities laws regarding digital assets. The Supreme Court noted in Bittner that “a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.”

    Lack of clear guidance

    The company pointed out that statutory provisions relevant to their case, such as the definition of “security” in 15 U.S.C. § 77b, provide no discussion specific to digital assets. They also argued that the SEC’s prior guidance on the matter contradicted their present litigating position. The company claimed that many experienced securities law practitioners and industry participants were unable to anticipate the SEC’s current theory.

    Implications for the digital asset industry

    The Court’s ruling, in this case, will have momentous implications for the digital asset industry and the application of securities laws to digital assets. Ripple Labs argued that the SEC’s current theory poses a serious fair-notice problem, similar to the issue presented in Bittner. The case is still unfolding, and the industry is watching closely for the Court’s ruling.

    The Ripple CEO stated in a recent interview that if the SEC continues to regulate through enforcement, the growth of crypto firms in the US will be stifled, and they will be forced to move offshore. It’s time for regulators to take a more proactive approach and create a framework that allows the industry to thrive while protecting consumers.

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