Reading time: ~2 m
- Yesterday, the SEC filed a letter with additional authority in support of its motion to waive the fair notice.
- Ripple, accordingly, filed its response to the SEC Additional Powers Letter in Defense of Fair Notice.
Briefly: The SEC is trying to defeat the defense argument with a fair notice, citing its other cases. But Ripple (and other watchers of the case) argue that there is a difference in procedural position: in cases cited by the SEC, defendants use fair notice to dismiss the claim outright. In the Ripple case, fair notice is used as a defense.
Turning to Judge Analise Torres, the SEC turns to another case that it has previously referred to. A January 21, 2022 ruling by the Southern District of Florida court dismissed the defense of fair notice as a matter of law and granted the SEC summary judgment. SEC v. Keener, in which the court found that the defendant had illegally failed to register as a “dealer” in securities.
“In doing so, Keener dismissed the same ‘fair notice’ argument that Ripple argues in this case, and that the SEC went on strike, believing the defense was untenable legally,” reads the letter .
“THE SAME FAIR NOTICE ARGUMENT THAT RIPPLE RELYS ON”
According to court documents, Defendant Keener argued that he “had no fair notice that his conduct might be unlawful” because he was not aware that his conduct might make him a “dealer” as defined in the Exchange Act. .
The defendant’s arguments were that:
1) “legislative language is opaque, which is why the SEC has issued so many interpretations over the years”;
2) “the SEC’s position in this lawsuit is in direct conflict with its previous guidance”;
3) whether the defendant was properly advised of the new application of the Exchange Law definition of “dealer” is a matter of fact for the court to decide.
A January 21, 2022 ruling by the Southern District of Florida court dismissed the defense of fair notice as a matter of law and granted the SEC summary judgment.
“Defendant advised that his conduct may be unlawful based on the “clear wording of the Exchange Act, decisions of this scheme applying the definition of ‘dealer’, and SEC leadership itself.”
The SEC filed the letter because it believes the case is similar to the fair notice argument in the SEC’s v. Ripple lawsuit, giving additional authority to the SEC’s motion to drop Ripple’s fourth positive defense.
RIPPLE SUPPORTS FAIR NOTICE
Ripple Company filed its response to the SEC Additional Powers Letter. As Ripple, SEC lawyers write once again ignores differences in procedural position: his last case was decided by summary judgment, while fair notice is used as a defense in the Ripple strike move.
The SEC also continues to ignore the fact that in this scheme, even “disputed or substantive points of law” are more properly “determined only after discovery and hearing on essence.”
Jeremy Hogan says the following: “The SEC does NOT win these cases at the Motion to Strike stage (which is where the Ripple case is), but later in the trial on motions for summary judgment. The FND depends on the specific facts of each case and will be decided by way of summary judgment and not by the MCT.”
Ripple alleges that the SEC did not provide fair notice that its conduct could be considered an unregistered sale of securities.
Lawyer Jeremy Hogan said last year that Ripple’s victory in this defense could ‘save the industry from the SEC’, as this would set a precedent, meaning that the SEC has failed to provide fair notice to the entire digital asset ecosystem in the past.
Earlier this month SEC filed another letter with additional powers in support of his strike proposal. The plaintiff submitted to the court a Dec. 20, 2021 decision of the Northern District of Illinois court denying the defendant’s motion to dismiss the SEC v. Fife.
According to the letter, Fife’s defendants argued that they were not properly aware of the SEC’s new interpretation of the statutory term “dealer.”
The court then upheld the SEC because it agreed that, for the purposes of assessing fair notice and due process, “the standard by which the SEC seeks to judge the conduct of defendants is the law itself, the language of which defendants and all others, even allegedly involved in securities transactions, the papers were clearly warned.”
The SEC is going to make the same argument in the SEC v. Ripple case: “The courts, not the parties, should determine whether a particular conduct falls under the law.”
“Indeed, the court rejected the defendants’ fair defense at the stage of the motion to dismiss, despite the fact that it recognized the absence of “binding powers” in the construction of the term “dealer”. In the case of Ripple, the mandatory authority to construct the term “investment contract” has existed since 1946.”
EARLIER THIS MONTH, RIPPLE REJECTED SEC’S FIFE ANALOGY
In your letter Ripple countered that Fife’s case does not support SEC arguments . “The question before this Court arises from an entirely different procedural position: is Ripple Answer plausibly setting out a knowable legal theory for its affirmative defense, so that it should be allowed to develop evidence and present the defense in a fuller account.
Hogan’s lawyer said the same thing on Twitter: “It was a very different stage of the trial and the standard was completely different from the SEC vs. Ripple case.” In Fife, the Respondent tried to argue “Fair Notice” to dismiss the claim entirely (and failed) because the burden is very high on the party seeking to file. Fife can still pick it up as a positive defense later – and I expect them to.
“In the case of Ripple, it is the SEC that is trying to defend a fair notice, and a heavy burden falls on it. The general idea of modern courts is that a decision should be made after consideration of the evidence, unless there is a “plausible” way to win,” he explained.
#battle #fought #fair #notice
