Securities and Exchange Commission v. Ripple Labs Inc.

Background

The Securities and Exchange Commission (SEC) asked the court to compel Ripple Labs, Inc. to provide three categories of information for the remedies phase of the case: (1) its 2022–2023 financial statements, (2) contracts governing institutional sales made after the complaint was filed, and (3) an answer to an interrogatory about proceeds from XRP institutional sales received after the complaint was filed. Ripple opposed the application.

The opinion states that, in July 2023, the court resolved the parties’ cross-motions for summary judgment and determined that Ripple had violated Section 5 of the Securities Act of 1933 by making unlawful offers and sales of securities through institutional sales of XRP to institutional buyers. The parties later agreed that some discovery related to remedies was appropriate. The SEC sought additional post-complaint discovery, while Ripple reserved its right to oppose it.

Court’s analysis

The court rejected Ripple’s argument that post-complaint discovery was untimely or barred by a June 2021 discovery ruling. That earlier ruling denied the SEC’s request without prejudice in the context of expert discovery and therefore did not control the current request.

Financial statements. The SEC argued that Ripple’s financial condition could assist the court in determining an appropriate penalty. Ripple argued that its financial health was irrelevant because it was not claiming an inability to pay and because the court could determine a penalty without the statements. Ripple also argued that the statements were highly confidential. The court concluded that the financial statements could be relevant to the remedies inquiry and ordered Ripple to produce its 2022–2023 financial statements under the parties’ protective order.

Post-complaint contracts. The SEC argued that Ripple’s conduct after the complaint could help the court decide whether an injunction was necessary and appropriate. The court noted that Ripple appeared to argue that an injunction was unnecessary because its post-complaint conduct complied with the court’s rulings. The court therefore ordered Ripple to produce its post-complaint contracts and was not persuaded that doing so would create an improper or costly mini-trial.

Post-complaint XRP institutional-sale proceeds. The SEC argued that proceeds from pre-complaint institutional sales could be relevant to calculating disgorgement. Ripple disputed whether its contracts created definite transaction obligations. The court explained that the issue before it was whether Ripple had to answer the interrogatory, not what weight should be given to the eventual answer. Finding that the SEC had sufficiently shown that the information could assist in determining the remedy, the court granted the SEC leave to serve one additional interrogatory.

Disposition

Magistrate Judge Sarah Netburn stated that the SEC’s motion was granted in full. The order required Ripple to produce the financial statements and post-complaint contracts and to answer the additional interrogatory. The order did not itself determine the amount or type of remedy; the opinion states that the District Judge would set the appropriate remedy.