Why Ripple will win over SEC, according to this lawyer

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On the 5th of November, renowned cryptocurrency attorney Jeremy Hogan weighed in on the outcome of the lawsuit between the United States Securities and Exchange Commission (SEC) vs. Ripple [XRP] via a thread on X (formerly Twitter).

I was in a small argument with my wife last night, which means, I am thinking about "damages" this morning. For me, that is an examination of different restaurants to take her.

For Ripple and the SEC, things are a little more complex.

A small thread if you are interested.

1/ https://t.co/nETbTERVvP

— Jeremy Hogan (@attorneyjeremy1) November 5, 2023

For context, the SEC invoked its authority to seek “disgorgement,” penalties, and interest in the ongoing case against Ripple. Disgorgement here refers to the act of reclaiming profits obtained through rule-breaking. It has become a central point of contention in the lawsuit.

Ripple’s defense strategy hinges on several key arguments, as articulated by Hogan. First, he pointed to the SEC v. Liu case of 2020, which emphasized that disgorgement should be an equitable remedy, meaning it should be “fair.”

In this context, “fair” entails calculating disgorgement based on the violator’s net profits, after deducting business expenses from the total.

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Hogan also highlighted a recent ruling in the 2nd District Court of Appeals, which stated that disgorgement must be “awarded for victims.” In this context, “victims” are individuals or entities who suffered financial losses due to an investment.

So, if an XRP purchaser bought at $0.30 and the price subsequently rose to $0.60, they are not victims. Therefore, no disgorgement may apply.

An intriguing aspect that has emerged during this legal battle is the rarity of the SEC suing a company for selling an unregistered security, while the price of that “security” increased during litigation.

This unique scenario raises questions about the true nature of XRP and whether it can be classified as a security.

Another critical element to consider is the SEC’s requirement to prove a nexus between the purchasers of XRP and the United States.

In essence, if Ripple sold XRP to a foreign investment firm with no ties to the U.S., the SEC may lack jurisdiction over that particular sale. This adds further complexity to the case.

On the SEC’s side, they will rely on established case law, which suggests that they don’t need to provide highly specific disgorgement damages. Instead, they can offer a ballpark estimate, shifting the burden to the defendant to demonstrate otherwise.

The SEC will also argue that Ripple’s expenses incurred to further the violation of the law should not be considered business expenses when calculating “net” profits. These various points of contention set the stage for intense legal battles that will continue into 2024.

The headline figure of $770 million in disgorgement may not ultimately amount to $770 million, as a range of factors and legal arguments will likely lead to a significantly lower sum.

Previously, on the 4th of November, attorney John Deaton suggested that a potential settlement of $20 million or less would be a resounding victory for Ripple.

Deaton’s perspective was far from a mere 50/50 proposition, as he claimed that this outcome leaned heavily in Ripple’s favor, presenting a striking 90/10 advantage.

The people who’ve argued that the SEC got a 50-50 victory in the @Ripple case are 💯 wrong. It was more like 90-10 in Ripple’s favor. If Ripple ends up paying $20M or less it’s a 99.9% legal victory. https://t.co/Xe6SYBiTCJ

— John E Deaton (@JohnEDeaton1) November 4, 2023

This revelation came in response to a post made by Stuart Alderoty, Ripple’s Chief Legal Officer, who pointed out yet another legal setback for the SEC.

The SEC has faced criticism on multiple fronts, with Coinbase [COIN] and Binance [BNB] joining the ranks of those who expressed their discontent. Notably, Coinbase took issue with the SEC’s response to its rulemaking petition, deeming it vague and insufficient.

Binance also criticized the SEC in retrospect to their ongoing lawsuit.

Judge Analisa Torres recently approved addressing institutional sales of XRP. This was a crucial aspect of the lawsuit where the company was found to have violated securities laws. The parties involved have been instructed to present a joint briefing schedule by 9 November.

Though the outcome remains uncertain, the pro Ripple community remains optimistic.

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