On February 5, 2024, Judge Sarah Netburn of the U.S. District Court granted the U.S. Securities and Exchange Commission’s (SEC) request to compel Ripple to disclose more financial information.
This includes financial statements for 2022 and 2023 and details of its institutional XRP sales. The SEC argues that this information is relevant to determining the appropriate remedy in the case.
The court’s decision is a significant development in the ongoing legal battle between Ripple and the SEC, which began in December 2020 when the SEC filed a lawsuit alleging that XRP is an unregistered security. The SEC’s lawsuit has had a significant impact on the price of XRP.
XRP was hampered in the 2021 bull run, unable to reclaim its all-time high. The lawsuit has also hindered major local and international partnerships for Ripple, which would have positively impacted XRP adoption by major financial institutions.
The SEC’s request for additional financial information is likely to further delay the resolution of the case. The deadline for remedies-related discovery is currently set for February 12, 2024, but this deadline may be extended.
Ripple had opposed the SEC’s request, arguing that its financial health was irrelevant to the case. However, this did not sway the judge, who has now granted the SEC’s request.
Pro-XRP Lawyer Comments on Court Decision
Bill Morgan, a prominent pro-XRP lawyer, commented on the court’s decision, noting that it is likely to have a more significant impact on the prospect of a permanent injunction than on the financial penalties the court may order Ripple to pay.
He also noted that the issue of sales to On-Demand Liquidity (ODL) customers is likely to become a key battleground. ODL is a Ripple product that allows financial institutions to send cross-border payments using XRP.
However, Morgan explains that an injunction will not restrain ODL customers. Ripple’s ODL customers can purchase XRP on secondary markets rather than from Ripple directly.
This means that an injunction against Ripple’s sales of XRP would not necessarily prevent ODL customers from using XRP. Additionally, the SEC’s authority is limited to U.S. markets, so an injunction would not apply to sales of XRP to ODL customers outside of the U.S.
Ripple is also likely to face challenges in structuring its future sales of XRP in a way that is both commercially viable and legally compliant. The SEC is likely to scrutinize any new sales channels that Ripple develops. Despite expectations of an XRP resurgence, the community might have to temper their expectations if the lawsuit drags out.