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SEC v. Ripple Labs, Inc.

SEC v. Ripple Labs, Inc.

United States District Court for the Southern District of New York

April 9, 2021, Decided; April 9, 2021, Filed

20-CV-10832 (AT)(SN)

Opinion

OPINION & ORDER

SARAH NETBURN, United States Magistrate Judge:

The Securities and Exchange Commission has sued Ripple Labs, Inc., Bradley Garlinghouse and Christian A. Larsen for violations of Sections 5(a) and 5(c) of the Securities Act of 1933 by engaging in the unlawful offer and sale of unregistered securities. The amended complaint further alleges that Garlinghouse and Larsen aided and abetted Ripple in its violations. See ECF No. 46 at ¶¶ 9, 10; 15 U.S.C. §§ 77e(a), 77e(c).

As part of civil discovery, the SEC seeks eight years of personal financial information of Garlinghouse and Larsen from them directly and through subpoenas served upon financial institutions with which they or their family members hold accounts. Garlinghouse and Larsen move for a protective order to avoid their discovery obligation and to quash the subpoenas served upon SVB Financial Group, First [*2]  Republic Bank, the Federal Reserve Bank of New York, Silver Lake Bank, Silvergate Bank, and Citibank, N.A. The motion is GRANTED.

BACKGROUND

XRP is a digital asset (or "cryptocurrency") that can be issued or transferred using a distributed ledger—a peer-to-peer database spread across a network of computers that records all transactions publicly.1 There are many such ledgers, some of which have "native" digital assets, perhaps with the best-known example being the Bitcoin, the native digital asset to the Bitcoin Ledger.2 XRP is the native asset to the XRP Ledger. See ECF No. 46 at ¶¶ 32-37.

The SEC alleges that in approximately late 2011 or early 2012, Larsen and another co-founder began to work on the idea and code for what would become the XRP Ledger. In September 2012, Larsen (with others) founded Ripple Labs, Inc. Id. at ¶ 44. Upon completion of the XRP Ledger in December 2012, and as its software was deployed on the first computer servers on which it runs, its development team created a fixed supply of 100 billion XRP. Id. at ¶ 45. The development team then transferred 80 billion XRP to Ripple and 9 billion to Larsen as compensation.3 Id. [*3]  at ¶ 46. Garlinghouse joined Ripple in 2015, and subsequently received at least 357 million XRP from Ripple as compensation. See id. at ¶¶ 74, 87. The SEC claims that from 2013 to the present, the Individual Defendants offered or sold a portion of their individual holdings of XRP to the public in exchange for hundreds of millions of dollars (1.7 billion XRP netting $450 million for Larsen and his wife; 375 million XRP netting $159 million for Garlinghouse). See id. at ¶¶ 86-88.

I. The SEC's Burden in this Case

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2021 U.S. Dist. LEXIS 69563 *; 2021 WL 1335918

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, -against-RIPPLE LABS, INC., et al., Defendants.

Subsequent History: Motion granted by, in part, Motion denied by, in part SEC v. Ripple Labs, 2021 U.S. Dist. LEXIS 89783, 2021 WL 1814771 (S.D.N.Y., May 6, 2021)

Motion denied by SEC v. Ripple Labs, Inc., 540 F. Supp. 3d 409, 2021 U.S. Dist. LEXIS 95328, 2021 WL 2069782 (S.D.N.Y., May 19, 2021)

Motion denied by SEC v. Ripple Labs, Inc., 2021 U.S. Dist. LEXIS 102002, 2021 WL 2323089 (S.D.N.Y., May 30, 2021)

Motion granted by, in part, Motion denied by, in part, Request denied by, Without prejudice, Request denied by SEC v. Ripple Labs, Inc., 2021 U.S. Dist. LEXIS 112010 (S.D.N.Y., June 15, 2021)

Motion denied by, Request denied by SEC v. Ripple Labs, Inc., 2021 U.S. Dist. LEXIS 180033, 2021 WL 4296650 (S.D.N.Y., Sept. 21, 2021)

Motion denied by SEC v. Ripple Labs, Inc., 2021 U.S. Dist. LEXIS 190855, 2021 WL 4555352 (S.D.N.Y., Oct. 4, 2021)

Motion granted by, in part, Motion denied by, in part, Without prejudice, Motion granted by, Motion denied by, in part, Motion granted by, in part SEC v. Ripple Labs, Inc., 2021 U.S. Dist. LEXIS 203566, 2021 WL 5336970 (S.D.N.Y., Oct. 21, 2021)

Motion granted by, in part, Motion denied by, in part SEC v. Ripple Labs, Inc., 2022 U.S. Dist. LEXIS 6999, 2022 WL 123590 (S.D.N.Y., Jan. 13, 2022)

Motion granted by, in part, Motion denied by, in part SEC v. Ripple Labs, 2022 U.S. Dist. LEXIS 21936, 2022 WL 329211 (S.D.N.Y., Feb. 3, 2022)

CORE TERMS

records, sales, financial records, discovery, transactions, subpoenas, deposit, argues, offers, Ledger, bank records, cryptocurrency, violations, requests, wallet