Ripple’s executive chairman has asked a U.S. court to dismiss a U.S. Securities and Exchange Commission (SEC) lawsuit alleging securities violations relating to sales of the XRP cryptocurrency.
According to a legal letter informing Judge Analisa Torres at the U.S. District Court for the Southern District of New York of a motion to dismiss, lawyers say the SEC’s amended complaint “still fails to state a claim against Mr. Larsen.”
In December, the SEC sued Ripple, CEO Brad Garlinghouse and Larsen alleging they had not registered XRP as a security or sought an exemption, and had sold over $1.3 billion in the cryptocurrency to retail investors.
The central claim centers on Larsen having “knowingly or recklessly provided substantial assistance to another person in violation of [Section 5]” of the Securities Act 1933, according to the amended complaint filed last month.
On those grounds, Larsen’s lawyers contend the SEC failed to show that Larsen knew at the time XRP units were securities and Ripple’s activities were inappropriate. They make various points to back this up, including that the Justice Department and FinCEN considered and regulated XRP as a “virtual currency” – a fact inconsistent with it being a security.
“The SEC’s own allegations are not only deficient but affirmatively show it cannot meet this standard,” the letter reads. “At a minimum, the SEC must allege that it was ‘so obvious’ that XRP transactions were securities and Ripple’s conduct was improper that Mr. Larsen ‘must have been aware of it.'”
The lawyers also argue the regulator fails to demonstrate Larsen had provided “substantial assistance” to Ripple in carrying out its sales of XRP, or that Larsen’s XRP transactions were within the U.S. and hence within its jurisdiction.
“This deficiency is fatal to the Section 5 claim against Mr. Larsen,” according to the letter. “To plead a Section 5 violation, the SEC must adequately allege that each sale occurred within the territorial reach of Section 5.”
The letter also alleges the SEC’s claim for monetary relief is time-barred, having gone beyond the allotted period to pursue a claim under Section 5.
“Because the SEC has alleged that the sales of XRP over a multi-year period constituted only one offer … the statute of limitations began to run in 2013 and expired in 2018,” the letter reads.