In a recent development that could significantly impact the legal battle between Ripple and the United States Securities and Exchange Commission (SEC), the regulator has reportedly been unable to identify any specific victims in its claim for $2 billion in damages against the American blockchain payments firm. This revelation came to light during an interview with Scott Melker, a well-known crypto investor, and James Murphy, a prominent attorney in the Web3 and digital assets space, also known as MetaLawMan on the social media platform X.
A Crucial Legal Hurdle for the SEC
The inability of the SEC to pinpoint any victims is particularly pivotal given the Second Circuit Court of Appeals’ ruling at the end of 2023. The court determined that for disgorgement—a repayment enforced by the court to prevent unjust enrichment—to be warranted, there must be identifiable victims who have suffered monetary losses due to fraud.
James Murphy highlighted the significant implications of this ruling for the SEC’s case against Ripple. He emphasized that for the SEC to justify imposing a fine on Ripple, there must be actual lawsuits filed by investors who have incurred losses. However, the SEC’s failure to identify any such individuals or institutions that purchased XRP and subsequently lost money severely undermines its position.
The Argument Over Discounts
Murphy also discussed the SEC’s argument regarding institutions that purchased XRP at a discount. According to the SEC, these institutions were “peculiarly harmed” as they received lesser discounts compared to other buyers. Murphy critiqued this point, noting that the regulator still needs to identify a specific “victim” institution that suffered financial losses from these transactions.
The Fate of Disgorgement and Penalties
Concluding his interview, Murphy pointed out that disgorgement funds are intended for the victims of violations, not for the US Treasury. With no identified victims in this case, the basis for disgorgement against Ripple dissipates. While a penalty could still potentially be levied against Ripple in the absence of disgorgement, Murphy questioned the rationale behind imposing a multi-million-dollar fine under these circumstances.
This development raises significant questions about the SEC’s damage theory against Ripple and its broader implications for regulatory enforcement actions against blockchain and cryptocurrency firms.
