In the XRP lawsuit between Ripple Labs Inc. and the United States Securities and Exchange Commission (SEC), the agency has escalated its demands. Filed on January 11, 2024, the SEC has submitted a motion in the Southern District of New York, seeking to compel Ripple to produce two specific categories of documents.

Firstly, the SEC is demanding Ripple’s financial statements for the years 2022 and 2023. This request is driven by the SEC’s need to determine appropriate remedies, including injunctions and civil penalties, in light of Ripple’s financial condition.

Secondly, the SEC is seeking documentation of Ripple’s post-Complaint contracts governing “Institutional Sales.” These are deemed critical for determining the appropriate remedies, such as injunctions and civil penalties, against Ripple.

XRP Lawsuit: SEC Requires More Documents

Specifically, the SEC seeks “to aid Judge Torres in determining whether, having found Ripple liable for violating Section 5 of the Securities Act of 1933 (‘Securities Act’), the Court should impose relief such as injunctions and civil penalties and, as to the latter, in what amount.” This emphasis is on understanding Ripple’s conduct since the original complaint was filed and assessing the potential for future violations.

Ripple has resisted these demands, arguing that the SEC’s request exceeds the permissible scope of discovery. They assert that the request for post-Complaint financial documents and contracts is not only burdensome but also irrelevant to the case’s remedies phase.

The SEC counters this stance, arguing that Ripple’s ongoing business activities, specifically its Institutional Sales of XRP post-Complaint, are central to the question of whether Ripple should be enjoined from future securities law violations. The SEC justifies this by stating, “This information is particularly central to the injunctive relief inquiry here because Ripple appears to argue it should not be enjoined on the basis that its future sales of XRP are or will be exempt from registration or the reach of the federal securities laws.”

Furthermore, the SEC emphasizes the importance of understanding Ripple’s current financial condition to determine the appropriate amount for any civil penalties. The motion states, “Ripple’s current financial condition and the actual total amount it received from its violative Institutional Sales is fundamental to tailoring a penalty to deter future violations.”

The SEC further argues, “Having agreed to participate in discovery concerning remedies and having taken advantage of this discovery period to submit its own supplemental expert report, Ripple’s refusal to produce any post-Complaint discovery is baseless.”

On July 13, 2023, Judge Analisa Torres delivered a summary judgment in the XRP lawsuit, determining that XRP’s public exchange sales did not equate to unregistered securities offerings, while institutional sales were classified as such. Subsequently, in October, the SEC’s request for an interlocutory appeal was rejected.

Additionally, the SEC retracted its allegations against Ripple’s CEO Brad Garlinghouse and Executive Chairman, previously accused of aiding in securities law violations in relation to XRP sales. The trial between the SEC and Ripple is set to commence on April 23, 2024, with the final pretrial conference scheduled for April 16, 2024.

At press time, XRP traded at $0.59877.