Ripple vs SEC Lawsuit As of May 16, 2024: Where the SEC Is Wrong

The ongoing legal battle between the SEC and Ripple has reached a critical juncture as the court prepares to rule on remedies. James Murphy, a lawyer popularly known on X as MetaLawMan (@MetaLawMan) shed light on a potentially controversial aspect of the SEC’s case: its demand for disgorgement.

Disgorgement in the context of securities law refers to the return of profits gained through illegal activity. In its opening brief on remedies, the SEC requested the court to impose a hefty penalty on Ripple exceeding $1.95 billion. This penalty breaks down into three parts: a civil penalty of $876.3 million, disgorgement of the same amount, and prejudgment interest of $198.15 million.

Read Also: Ripple Faces Possible $3 Billion Fine, As XRP Lawsuit Takes New Turn: Details

The Disputed Disgorgement: Is the SEC Wrong?

Murphy raises a key point regarding the disgorgement portion of the SEC’s request. He highlights a crucial precedent set by the U.S. Supreme Court, which mandates that disgorged funds be directed towards victims harmed by the unlawful activity. According to the precedent, disgorgement is meant to compensate victims, and not enrich other parties.

Here’s where the controversy arises. The SEC claims Ripple violated securities laws by selling XRP. However, the alleged victims in this case are institutional buyers of XRP, not retail investors.

Murphy emphasizes that if the SEC prevails, the disgorged funds would be returned to these institutional buyers. This raises concerns, as these entities are believed to have already profited from their XRP transactions with Ripple.

Ripple Echos Similar Concerns

Interestingly, Ripple’s legal team presented a similar argument in its response brief on remedies. The company contends that disgorging funds to institutional buyers who already profited would be akin to awarding them an undeserved windfall.

Ripple further argues that disgorgement is not warranted and proposes a significantly lower civil penalty of $10 million.

Read Also: Another SEC Loss that Excites Ripple and XRP Camp

Reactions and Next Steps

Murphy’s analysis has resonated with other legal professionals supporting Ripple. Attorney Bill Morgan, another vocal advocate for Ripple, replied to Murphy’s interview, criticizing the SEC’s disgorgement demand, calling it an anomaly in the lawsuit that ultimately protects no one.

With the remedies briefs filed, both parties are currently engaged in motions regarding the sealing of confidential information associated with these documents. The court’s final ruling on remedies is anticipated to be a significant turning point in the long-running lawsuit, and many believe the end of the lawsuit will be a significant turning point for XRP.

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