SEC Bags Significant Win In XRP Lawsuit: Ripple Ordered To Produce Financial Statements

A new development has emerged in the ongoing legal squabble between San Fransciso-based fintech startup Ripple Labs and the United States Securities and Exchange Commission (SEC).

The U.S. District Court for the Southern District of New York has granted the SEC’s motion to compel, mandating Ripple to hand over comprehensive financial statements for 2022-2023 and institutional sales contracts. 

U.S. Court Rules In Favor Of SEC

A U.S. District Judge has delivered a major ruling in favor of the SEC in its lawsuit against Ripple. 

Magistrate Judge Sarah Netburn consented to a motion filed by the SEC in January demanding that Ripple produce audited financial statements for the financial years 2022 and 2023, which the agency contends are key for determining the scale of civil penalties for the XRP progenitor.

The securities regulator also requested that Ripple disclose all contracts linked to the sale or transfer of XRP to external entities made after the initial filing, as well as answer questions regarding the amount of proceeds it accrued from the institutional sale of XRP. Judge Netburn has granted all these requests.

SEC sued Ripple in late 2020 over what it said were unregistered sales of the XRP token. Last July, Judge Analisa Torres declared in a summary judgment that institutional sales of XRP satisfied the infamous Howey test and constituted securities sales.

Notably, the deadline for requesting information during the fact discovery phase ended in August 2021. Lawyers representing Ripple contended that the SEC’s request for financial material post-complaint discovery was untimely and completely irrelevant to the case. Moreover, they noted that the request was previously blocked by the court’s ruling in June 2021.

However, Judge Netburn explained that the earlier refusal was contextual, connected to expert merits discovery, and had no bearing on the current issue. 

Despite Ripple’s assertion that its financial condition is irrelevant since it wasn’t planning to argue that it could not pay penalties, the court saw “no basis to short-circuit that inquiry by denying access to readily available information that may be probative to the remedy stage.”

Feb. 12 — Deadline For Ripple’s Compliance

Judge Netburn has ordered the presentation of Ripple’s post-complaint contracts. This means the court sided with the SEC’s view that the said documents could reveal whether the company’s behavior post-complaint abided by the court rulings, thus helping determine whether an injunction is necessary. 

As aforementioned, the SEC’s win also includes Ripple being required to answer an interrogatory on the proceeds from XRP Institutional Sales, which could be used to determine the disgorgement that the crypto firm could pay. 

The court has set February 12th, 2024 as the deadline for the completion of discovery related to the appropriate remedy. As the legal proceedings carry on, Ripple’s disclosure of its financial statements and sales contracts will be critical in determining the outcome of the case.