On Sunday, attorney and partner at Hogan & Hogan Jeremy Hogan shared his views on the SEC v Ripple case. Hogan discussed the matter of disgorgement, with the SEC targeting an eyewatering $770 million penalty for the illegal sales of XRP to institutional investors.
Hogan noted that the law permits the SEC to seek disgorgement, interest, and penalties. The matter of disgorgement comes following the Court ruling that approximately $770 million in XRP sales to institutional investors was illegal.
The Ripple Arguments on Disgorgement
Hogan suggested Ripple has two arguments in the matter, saying,
“First, the SEC v Liu case (2020) basically said that disgorgement is an equitable remedy, which means that it should be fair. And fair in this context means that it should be the violations NET profits, not GROSS. So, Ripple will deduct business expenses from the total.”
“As was recently upheld in the 2nd DCA, the amount of disgorgement must be awarded for the victims. Victims means individuals/entities who lost money on an investment. So, if an XRP purchaser paid $0.30 and the price is now $0.60, they are not a victim and therefore no disgorgement.”
“Finally, the SEC has to provide some nexus between the purchaser of XRP and the United States. In other words, if Ripple sold XRP to a German investment company with no ties to the US, the SEC has no jurisdiction over that sale. The nexus question will be interesting.”
Hogan noted that the SEC can estimate disgorgement damages and place the burden of proof on Ripple to refute it. Furthermore, he pointed out that the SEC might argue that Ripple incurred expenses that contributed to further violations. In such cases, the SEC may advocate to exclude these expenses when calculating net profits.
Lawyers Ease Fears of a $770 Million Penalty
Two lawyers viewed it unlikely for the SEC to get close to a $770 million penalty.
Jeremy Hogan summed up his assessment of the case, saying,
“In conclusion, $770 million is NOT going to be $770 million, but something much less.”
On Saturday, CryptoLaw US founder and amicus curiae attorney John E. Deaton shared his perspective, stating,
“The people who’ve argued that the SEC got a 50-50 victory in the Ripple case are 100% wrong. It was more like 90-10 in Ripple’s favor. If Ripple ends up paying $20M or less it’s a 99.9% legal victory.”
Hogan presented a plausible argument when considering investors were not out of pocket, unlike other cases involving hefty disgorgement penalties. Regarding the question of whether XRP qualifies as a security, Hogan made an intriguing observation,
“[…] how rare is it that the SEC sues a company for selling an unregistered security and during the litigation the price of the security increases? Very rare. And that might be another indication that the security is… not a security.”