18 Mar 2021 · 4 min read

SEC Lists 3 Reasons for Seeking Ripple Execs' Financial Info on XRP Deals

The US Securities and Exchange Commission (SEC) explained why they require personal financial information about executives in their case against blockchain company Ripple, claiming it to be the only way to see XRP movements in full, and determine if and how much the executives "enriched themselves."

Source: Adobe/Tierney

In the legal battle in which the regulator claims XRP token is an “unregistered security” and that Ripple and its executives sold it as such, the SEC recently asked for personal financial information from banks on the company’s two most powerful executives, Executive Chairman Christian Larsen and CEO Bradley Garlinghouse - with the two's lawyers claiming that there is no "coherent explanation for why it is entitled to this information."

The regulator responded on March 17, stating that "the financial records [...] directly relate to several elements the SEC must prove to prevail in this action," asking the Court to deny Larsen's and Garlinghouse's motion "to quash subpoenas relating to their financial condition."

There are "at least three relevant reasons" the SEC seeks these records, per the document:

  1. given the pseudonymous nature of XRP transactions, the execs' individual bank records are the only reliable way to de-anonymize their movements of XRP and determine how much they raised exactly from XRP sales to the public;
  2. they will show whether the execs personally funded efforts to increase the value of XRP;
  3. they will show how much the execs "enriched themselves relative to other income, which bears on the powerful, personal financial motivation they had to look the other way when confronted with the legal consequences of their conduct."

The response said that the SEC found that at least Larsen has used other intermediary and custodial wallets at offshore digital asset platforms, and that he "appears to continue moving" his XRP via pseudonymous, cross-border blockchain transactions since the filing of the case.

As for Garlinghouse, the "full extent of [his] sales of XRP while claiming he was “long” the asset is particularly relevant to his claim that he acted innocently while engaging in XRP sales," they said.

Referring to the defendants' response to the regulator's request, the SEC said that it's not looking to see how much money is "spen[t] at the grocery store every week," adding:

"That Individual Defendants enriched themselves with hundreds of millions from the public and now seek to shield their financial records from the SEC and the Court (casting requests for them as “trolling” and a “fishing expedition”) is troubling."

The SEC is not interested in details of the defendants' financial affairs beyond determining the net proceeds of their XRP sales, the relative importance of the sales to their income, and their use of XRP investor funds, they write.

The regulator stated that they're "willing" to have the execs redact transactions of less than USD 1,000, that they have previously agreed to narrow the requests to documents sufficient to show the defendants' financial condition at the time of their receipt and sales of XRP, and that the Protective Order will protect defendants' privacy interest in the records.

Without the bank records, argued the SEC, they'd have to take the executives at their word, especially as the SEC had to “manually” trace their transactions since they last provided data, "with no guarantee that the SEC has been able to identify the complete universe of their sales and blockchain movements of XRP."

The regulator concluded that,

"Individual Defendants offer not to argue that their sales of XRP were insignificant sources of income, but the SEC is entitled to explain just how significant those sales were to their bottom lines."

Earlier in March, the SEC petitioned the judge in its case against Ripple to dismiss arguments in the company’s defense, claiming that Ripple has attempted to “divert the court’s attention” with invalid fair notice defense claims.

On their part, Ripple claimed that the regulator's complaint caused some USD 15bn damage to holders and others.

Also, Larsen filed a motion requesting the case against him to be dismissed, arguing that the SEC’s claims are barred by the five-year statute of limitations.

As reported, the US federal judge denied a motion to intervene filed over the last weekend on behalf of a group of XRP holders who were alleging that they were not being adequately represented in the lawsuit.

Ripple's partner MoneyGram also landed in legal hot water over the nature of its relationship with the company, after which the relationship was ended.

At 15:30 UTC, XRP, ranked 7th by market capitalization, is trading at USD 0.48. It's up 3% in a day and 4% in a week. The price is down by 12% in a month, trimming its gains over the past 12 months to 223%.
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