The US Securities and Exchange Commission (SEC) has filed a supplemental authority letter in its ongoing case against the blockchain company Ripple. This letter from the SEC refutes a defense raised by Ripple pertaining to the lack of fair notice from the regulator. According to the SEC, this defense is similar to the one failed by Commonwealth Equity Services in a previous case. The SEC, quoting the Commonwealth court holding, argued that the defendant was provided sufficient fair notice by reference to a 50-year old Supreme Court precedent regarding the Investment Advisers Act of 1940 and its disclosure requirement.

Furthermore, the letter from the SEC further cites a string of district court decision rejecting fair notice defenses on summary judgment. Additionally, the court held that the defendant was provided sufficient notice even though the SEC had been aware of the practice in question for over two decades. Ripple’s stance of the fair notice defense is premised on the Upton vs. SEC lawsuit. Meanwhile, the SEC has called the defendant’s reliance of the Upton case misguided, arguing that the Upton court did not provide a binding declaration of the fair notice doctrine.

Ripple’s defense was further supported by a recent Supreme Court ruling, Bittner v. US, in which two Justices utilized the rule of lenity, favoring the defendant in situations with unclear rules. Responding to this, the SEC argued that the rule of lenity can only be invoked in a criminal case and not a civil one. As such, the SEC believes that the rule does not necessarily absolve Ripple of liability.

Overall, the SEC’s supplemental authority letter provides a legal basis for its rejection of Ripple’s fair notice defense. The case is still ongoing, and it remains to be seen if Ripple will be successful in its assertion or if the securities regulator’s claim will hold up.



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