SEC v. Ripple: Larsen and Garlinghouse’s Actions Did Not Not Constitute Sale of Investment Contracts

DISCUSSION

II. Analysis

B. Defendants’ Offers and Sales of XRP

4. Larsen’s and Garlinghouse’s Offers and Sales

Lastly, the Court addresses Larsen’s and Garlinghouse’s offers and sales of XRP. Section 4(a)(1) of the Securities Act exempts “transactions by any person other than an issuer, underwriter, or dealer.” 15 U.S.C. § 77d(a)(1). The SEC argues that this exemption does not apply to Larsen and Garlinghouse because they are “affiliates” of Ripple and “an affiliate of the issuer—such as an officer, director, or controlling shareholder—ordinarily may not rely upon the Section 4(1) exemption.” Cavanagh, 445 F.3d at 111 (cleaned up).

The Court need not reach this issue. Like Ripple’s Programmatic Sales, Larsen’s and Garlinghouse’s XRP sales were programmatic sales on various digital asset exchanges through blind bid/ask transactions. See SEC 56.1 Resp. ¶¶ 280–84, 306–09. Larsen and Garlinghouse did not know to whom they sold XRP, and the buyers did not know the identity of the seller. Thus, as a matter of law, the record cannot establish the third Howey prong as to these transactions. For substantially the same reasons discussed above, supra § II.B.2, Larsen’s and Garlinghouse’s offer and sale of XRP on digital asset exchanges did not amount to offers and sales of investment contracts.[19]

[19] For the reasons stated, the Court need not address Defendants’ argument that Larsen and Garlinghouse are entitled to summary judgment on offers and sales on “foreign exchanges.” See Defs. Mem. at 58–74.