Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 1 of 36
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`________________________________________________
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`SECURITIES AND EXCHANGE COMMISSION,
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`v.
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`RIPPLE LABS, INC., BRADLEY GARLINGHOUSE,
`and CHRISTIAN A. LARSEN
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`Plaintiff,
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`MEMORANDUM OF
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`LAW IN SUPPORT OF
`MOTION TO
`INTERVENE
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`PURSUANT TO
`FEDERAL RULES OF
`CIVIL PROCEDURE 24
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`
`20-cv-10832 (AT)
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`Defendants,
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`JORDAN DEATON, JAMES LAMONTE,
`TYLER LAMONTE, MYA LAMONTE,
`MITCHELL MCKENNA, KRISTIANA WARNER and
`ALL SIMILARLY SITUATED XRP HOLDERS,
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`Proposed
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`Intervenors.
`________________________________________________
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 2 of 36
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`TABLE OF CONTENTS
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`Section
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`TABLE OF AUTHORITIES……………………………………………………………………..iii
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`PRELIMINARY STATEMENT……..…………..……………………………………………….1
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`STATEMENT OF FACTS ………………………………………...……………………………..2
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`Page
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`I.
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`Government Agencies Recognize XRP as a Currency…………………..……………2
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`II.
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`III.
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`IV.
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`V.
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`The Securities and Exchange Commission…….……………………………...………3
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`XRP Holders Contribute to the XRP Ecosystem………………...……………………5
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`The SEC Complaint Charges Ripple but Attacks XRP and XRP Holders……………7
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`XRP Holders Take Action…………………………………………………………….9
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`LEGAL STANDARD……………………………………………………………..……………..10
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`ARGUMENT………………………………………………………………………………….....11
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`Intervention in SEC Enforcement Action is Permitted………………………..……..11
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`I.
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`II.
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`XRP Holders Should be Granted Intervention as of Right…………………..……....13
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`A. The Motion is Timely.…………………………………..…………………………...13
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`i. XRP Holders Took Immediate Action to Protect Their Interests……13
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`ii. There is No Prejudice to Existing Parties Resulting From Delay……14
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`iii. XRP Holders Would Be Prejudiced By a Denial of the Motion ……15
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`iv. Circumstances Favoring Intervention………………………………..15
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`B. XRP Holders Have a Protectable Interest in the Property Subject to This Action…..15
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`C. Without Intervention, XRP Holders’ Interest May Be Impeded by the Disposition of
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`This Case…………………………………………………………………………..…22
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`D. XRP Holders’ Interests Are Not Adequately Represented…………………………..24
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`i. The SEC Does Not Adequately Represent The Interest of XRP
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`Holders……………………………………………………………….24
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`ii. Defendants Do Not Adequately represent The Interests of XRP
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`Holders…………………………………………………………….…26
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`III.
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`Alternatively, XRP Holders Should be Granted Permissive Intervention……..…….26
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`A. Common Questions of Law and Fact Favor Intervention……………………………27
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`B. Intervention Does Not Prejudice Existing Parties…………………………………...28
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`IV. Due Process and Fundamental Fairness Favor Intervention………………………....29
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`CONCLUSION…………………………………………………………………………………..30
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 4 of 36
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` TABLE OF AUTHORITIES
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`Page
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`Cases
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`Brennan v. NYC Bd. Of Educ.,
`260 F.33d 123 (2d Cir. 2001) ……………………………………………...…………11, 15
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`Butler, Fitzgerald & Potter v. Sequa Corp.,
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`250 F.3d 171 (2d Cir. 2001)………………………………………………………………24
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`Cole Mech. Corp. v. Nat’l Grange Mut. Ins. Co.,
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`No. 06 CIV. 2875 LAK HBP, 2207 WL 2593000 (S.D.N.Y., Sept. 7, 2007)...…………...10
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`In re Holocaust Victim Assets Litig.,
`(“HVAL”) 225 F.3d 191, 197 (2d Cir. 2000)………………………………………...13, 14
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`In re Reyes,
`No. 19 CIV. 7219, 2019 WL 6170901 (S.D.N.Y. Nov. 20, 2019) (Torres, A.)............10, 27
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`Int’l Design Concepts, LLC v. Saks, Inc.,
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`486 F.Supp.2d 229 (S.D.N.Y. 2007)……………………………………………………..14
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`MasterCard Int’l Inc. v. Visa Int’l Serv. Assoc., Inc.,
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`471 F.3d 377 (2d Cir. 2006)…………………………………………………………..10, 13
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`Peterson v. Islamic Republic of Iran,
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`290 F.R.D. 54 (S.D.N.Y. 2013)………………………..…………………..……………..27
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` R
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` Best Produce, Inc. v. Shulman-Rabin Marketing Corp.,
`467 F.3d 238 (2d Cir. 2006)………………………………………………………………10
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`Yang v. Kellner,
`No. 20 CIV. 3325, 2020 WL 2115412 (S.D.N.Y. May 3, 2020) (Torres, A.)………….…...9
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`SEC v. Caledonian Bank, Ltd.,
`317 F.R.D. 358 (S.D.N.Y. 2016)…………………………………………………………11
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`S.E.C. v. Credit Bancorp, Ltd.,
`194 F.R.D. 457 (S.D.N.Y. 2000)…………………………………………………………12
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`SEC v. Shavers,
`4:13-cv-00416, 2013 WL 4028182, at *2 (E.D. Tex., Aug. 6, 2013)………………..…....20
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 5 of 36
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`SEC v Telegram Grp, Inc.,
`2020 US Dist WL 1547383 [SDNY Apr. 1, 2020, No. 19-cv-9439 (PKC)……………..……15
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`SEC v. Telegram Grp. Inc.,
`448 F. Supp. 3d 352 (S.D.N.Y. 2020)…………………………………………………….17
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`SEC v W.J. Howey,
`328 U.S. 293, 298-99 (1946)…………………………………………………………..…15
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`Upton v. SEC,
`75 F. 3d 92, 97-98 (2nd Circuit 1996)……………………………………………………..30
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`U.S. v. Harmon,
`No. 1:19-cr-00395-BAH, Doc. 59 (District of Columbia Jul. 24, 2020)…………...…19, 20
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`U.S. v. Faiella,
`39 F. Supp. 3d 544, 547 (S.D.N.Y. 2014)………………………………………………20
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`United States v. Murgio,
` 209 F. Supp. 3d 698, 707 (S.D.N.Y. 2016)………………………………………………21
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`United States v. Ologeam,
`No. 5:18-cr-81, 2020 WL 1676802 (E.D. Ky. Apr. 4, 2020)……………………………...21
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`United States v. Ulbricht,
`31 F. Supp. 3d 540, 570 (S.D.N.Y. 2014)……………………………………………….21
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`Rules
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`FRCP Rule 24(a)………………………………………………………………….............10, 13, 30
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`FRCP Rule 24(a)(2)……………………………………………………………………………...15
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`FRCP Rule 24(b)………………………………………………………………………… 10, 27, 30
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`Rule III(A), Individual Practices in Civil Cases,
`Analisa Torres, U.S. Dist. J. S.D.N.Y. (rev. Jan. 21, 2020)……………………………….13
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`Other Authorities
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`Realizing the Future of the Blockchain Economy With Signum Capital,
`Asia Blockchain Review, July 21, 2019…………………………………………………2
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`Bitcoin: A Peer-to-Peer Electronic Cash System,
`Satoshi Nakamoto (2008). ……………………………………………………………….21
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 6 of 36
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`Proposed Intervenor-Defendants, Jordan Deaton, James Lamonte, Tyler Lamonte, Mya
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`Lamonte, Mitchell Mckenna, Kristiana Warner and all other similarly situated XRP Holders,
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`(“XRP Holders”) respectfully submit this memorandum of law in support of their Motion to
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`Intervene pursuant to Federal Rule of Civil Procedure 24.
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`PRELIMINARY STATEMENT
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`XRP Holders are a putative class of users, investors, holders, developers, content
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`providers and small businesses that utilize the digital asset XRP and the XRP Ledger (“XRPL”).
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`Many XRP Holders have never heard of Ripple.1 XRP Holders have a significant interest in the
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`property at issue in this enforcement action. When the Securities and Exchange Commission
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`(“SEC”) brought this lawsuit against Ripple and its two executives, it not only alleged that the
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`named Defendants conducted an unprecedented eight-year continuous and ongoing offering, it
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`also specifically alleged XRP itself to be a security. This novel and dangerous assertion suggests
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`all XRP constitute unregistered securities, including the XRP owned and utilized by XRP
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`Holders.
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`The SEC allegations are riddled with material misrepresentations about XRP Holders;
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`their reliance on Ripple, their use of XRP and their independent development of the XRP
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`ecosystem. By failing to distinguish specific prior sales and distributions by Ripple from present-
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`day XRP, the SEC has put the property of XRP Holders at the heart of this case and positions its
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`interest at the complete opposite end of the spectrum from that of XRP Holders. The Defendants
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`have also made it clear that they do not represent the interests of XRP Holders. Simply put, XRP
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`Holders cannot rely on the Defendants’ efforts in this case. Without intervention, the SEC can
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`1 Proposed Intervenors and their counsel have been contacted by over 12,600 XRP holders,
`users, investors, developers, and small businesses utilizing XRP requesting to join in the motion
`to intervene.
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 7 of 36
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`continue to manipulate the role of XRP Holders to fit its narrative against Ripple and its two
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`executives and potentially destroy the property interests of XRP Holders. XRP Holders,
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`therefore, seek to intervene in this enforcement action pursuant to Fed. R. Civ. P. 24.
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`STATEMENT OF RELEVANT FACTS
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`I.
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`Government Agencies Recognize XRP as a Currency
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`Prior to the SEC’s enforcement action against Ripple and XRP Holders, XRP was the
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`third-largest Cryptocurrency in the world. See Hr’g Tr. 8:8-10 (Mar. 19, 2021). Beginning in
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`2013, XRP was openly traded on over two hundred exchanges. Def.’s Answer to First Am.
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`Compl. at 42, ECF No. 51.
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`XRP traded on exchanges with the two larger similar cryptocurrencies, Bitcoin and Ether.
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`Senior officials from the SEC publicly deemed Bitcoin and Ether as non-securities. Def.’s
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`Answer to First Am. Compl. at 3, ECF No. 51. Bitcoin, Ether and XRP have repeatedly been
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`referred to as a new nascent asset class.2
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`In 2015 and 2020, the Department of Justice (“DOJ”) and the Financial Crimes
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`Enforcement Network (“FinCEN”) entered into an agreement with Ripple stating XRP would be
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`considered virtual currency and its use would be registered exclusively with FinCEN, not the
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`SEC. Def.’s Answer to First Am. Compl. at 2, ECF No. 51.
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`2 The Head of Asset Management of Signum, a Swiss bank in Singapore, called out to the public
`to increase exposure to “the tokens of the future” and listed those tokens to be “Bitcoin, Ether,
`and XRP.” Signum classified Bitcoin as the future asset for store of value and wealth. It
`classified Ether as an infrastructure play of the future. It classified XRP as not a security, but as
`technology of the future regarding payments. Realizing the Future of the Blockchain Economy
`With Signum Capital, Asia Blockchain Review, July 21, 2019.
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`In 2018, the newly appointed chairman of the SEC, Gary Gensler, described XRP as a
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`“bridge currency” between two Central Bank Digital Currencies (“CBDC”). See Deaton Decl.
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`Ex. B, Gensler Financial Roundtable, (September 26, 2018).
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`In June 2020, former chairman of the U.S. Commodity Futures Trading Commission
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`(“CFTC”) Chris Giancarlo (“Giancarlo”) stated XRP is more like an alternative currency than a
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`security and should have the same legal status as Bitcoin or Ether.4
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`The United States isn’t the only government to classify XRP as a non-security or
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`alternative currency. Japan, Singapore, and the U.K. have all declared XRP to be a non-security.
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`Def.’s Answer to First Am. Compl. at 42, ECF No. 51.
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`II.
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`The Securities and Exchange Commission’s Action, Inaction, and Acquiescence
`Communicate That XRP, Similar to Bitcoin and Ether, is Not a Security
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`In 2018, the SEC permitted and authorized Ripple to purchase a nine-percent minority
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`stake in MoneyGram International (“MGI”) knowing that Ripple would distribute XRP to MGI
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`which in turn, would sell the XRP in the secondary market to purchasers including XRP Holders.
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`Pl’s First Am. Compl. at 64, ECF No 46.
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`In June 2018, then-director of corporation and finance, William Hinman gave a speech in
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`which he publicly deemed Bitcoin and Ether as non-securities and provided general commentary
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`that at some point, a digital asset becomes sufficiently decentralized and can no longer be
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`4 Writing an op-ed for the International Financial Law Review, along with Conrad Bahlke of the
`international law firm Willkie Farr & Gallagher, Giancarlo and Bahlke wrote that XRP doesn’t
`hit any of the prongs of the Howey Test and should not be regulated as a security but instead
`considered a currency or a medium of exchange. According to Giancarlo and Bahlke, XRP was
`never marketed as a security, nor were investors promised any returns; the token has a very
`specific use case for liquidity and settlements; Ripple has never offered holders any rights of
`ownership or share of profits; and, therefore, there is no investment contract or formal
`relationship that exits between Ripple Labs and XRP Holders. See Deaton Decl. Ex. D Giancarlo
`cryptocurrencies and us securities laws beyond bitcoin and ether (June 17, 2020).
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`considered an investment contract. See Deaton Decl. Ex. C, William Hinman Speech (June 14,
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`2018).
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`In 2019, Platform A, prior to listing XRP, met with the SEC to determine the legal status
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`of XRP and sought guidance as to whether the SEC considered XRP to be a security. Following
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`that meeting, Platform A listed XRP. Other market participants also sought guidance from the
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`SEC prior to the commencement of this action. At no time prior to the filing of this case did the
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`SEC dissuade market players from listing or trading XRP. Def.’s Answer to First Am. Compl. at
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`98-99, ECF No. 51.
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`In March 2019, then-chairman of the SEC, Jay Clayton (“Clayton”), stated:
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`[T]he analysis of whether a digital asset is offered or sold as a security is not static
`and does not strictly inhere to the instrument. A digital asset may be offered and sold
`initially as a security because it meets the definition of an investment contract, but that
`designation may change over time if the digital asset later is offered and sold in such a
`way that it will no longer meet that definition. I agree with Director Hinman’s
`explanation of how a digital asset transaction may no longer represent an investment
`contract if, for example, purchasers would no longer reasonably expect a person or group
`to carry out the essential managerial or entrepreneurial efforts. Under those
`circumstances, the digital asset may not represent an investment contract under the
`Howey framework.
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`See Deaton Decl. Ex. E, Jay Clayton Letter (March 7, 2019).
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`In January 2020, Bailard, a wealth and investment management firm, submitted its Code
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`of Ethics for the SEC’s approval. The section that deals with the cryptocurrency asset class reads
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`as follow:
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`In light of the extremely complex nature of the legal analysis regarding cryptocurrencies
`to determine which ones are securities and which ones are not, Bailard has decided to
`allow investments in three cryptocurrencies – Bitcoin, Ethereum, and XRP – that are
`generally accepted to be currencies and not currently subject to regulation by the SEC.
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`See Deaton Decl. Ex. F, Bailard Code of Ethics Excerpt at 2-3 (January 1, 2020).
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`As late as October 2020, approximately 60 days before Clayton directed and authorized
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`the suit against Defendants and XRP, the SEC continued to inform XRP Holders – who were
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`inquiring as to the status of XRP in relation to Bitcoin and Ether – that the SEC had made no
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`determination as to whether XRP is a security and did not know when or if it would ever make
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`such a determination. Def’s Resp. Fn. 3 at 5, Mar. 24, 2021, ECF No. 81.
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`In December 2020, Clayton and the SEC was warned by a former chief of the SEC,
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`Joseph Grundfest (“Grundfest”) that the mere filing of an enforcement action alleging XRP to be
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`securities would result in unprecedented multi-billions in losses to individual holders and users
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`of XRP with absolutely no connection to Ripple or its two executives. Grundfest argued that the
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`SEC had not established a material distinction between Ether and XRP that justified filing an
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`enforcement action against XRP and doing so would call into question the Commission’s
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`exercise of discretion. See Deaton Decl. Ex. G, Grundfest Letter Discussion (December 17,
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`2020).
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`In March 2021, SEC Commissioner Hester Peirce appeared for an interview on the
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`Thinking Crypto YouTube channel. During this interview, Commissioner Peirce admitted that
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`the SEC tends to think of the token as the security, rather than the totality of the offering. She
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`commented that it would be a better approach to look at the offering as a whole, rather than treat
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`the token as securities. See Deaton Decl. Ex. H, Hester Peirce Thinking Crypto Interview (Mar.
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`9, 2021).
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`III. XRP Holders Contribute to the XRP Ecosystem
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`From 2013 to present, XRP Holders have been utilizing XRP and the XRPL for multiple
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`purposes, creating value and utility for XRP. Undoubtedly, some XRP Holders purchased XRP
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`for the purposes of speculative investment just as they have purchased Bitcoin and Ether. Some
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`XRP Holders are simply users of XRP and the XRPL, utilizing XRP exclusively in their capacity
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`as consumers. See Deaton Decl. Ex. I, emails from XRP Holders. As consumers, XRP Holders
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`utilize XRP as a substitute for fiat currency for everyday purchases at Walmart, Amazon, Target
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`and millions of other businesses. Id at 1. XRP is utilized for direct payments in XRP for over 500
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`shopping markets, 300 internet service providers, 500 crypto-services, 30 tourism businesses and
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`the list grows weekly. See Deaton Decl. Ex. K, Cryptwerk’s XRP Directory. Some XRP Holders
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`utilize their XRP as collateral in order to secure loans in fiat currency. See Deaton Decl. Ex. L,
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`Nexo’s Instant Crypto Credit Lines. Some XRP Holders use their XRP on XRP TipBot to donate
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`to charities and other organizations. See Deaton Decl. Ex. M, Several known companies and
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`applications using XRP.
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`Some XRP Holders are developers who use XRP operationally within their business
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`model. Id. Some XRP developers utilize the XRPL’s decentralized exchange (“DEX”) for the
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`digitalization of different assets, such as stocks, bonds and commodities. Id. Some XRP
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`developers have created consumer products such as the Xumm Wallet which utilizes the XRPL
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`to store multiple cryptocurrencies, including Bitcoin, Ether and XRP. See Deaton Decl. Ex. J,
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`twitter responses from XRP Holders. Some XRP Holders acquired XRP, not as an investment
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`but as a payment for goods and/or services rendered. Id. Some XRP Holders receive XRP as
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`micropayments for providing content on YouTube, Coil and other media outlets. Id.
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` Some XRP Holders utilize XRP and XRPL to tokenize nonfungible tokens. Id. Some XRP
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`Holders utilize XRP as a bridge currency to transfer one asset from one exchange to another. See
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`Deaton Decl. Ex. N, excerpt of XRPL’s overview of XRP. Some XRP Holders utilize XRP’s
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`superior speed and lower cost to purchase and move other assets such as Bitcoin and Ether. See
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`Deaton Decl. Ex. O. The same is true for foreign fiat concurrencies (i.e. Pesos, Euros, Yen). See
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`Deaton Decl. Ex. M. Some XRP Holders utilize XRP to send money to friends and family
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`around the world. Id., Deaton Decl. Ex. I. Some XRP Holders utilize XRP for cross-border
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`payments between the United States and Mexico, Europe, the Philippines, Thailand, and other
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`foreign countries. Id., Deaton Decl. Ex. I. Some XRP Holders have utilized businesses such as
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`Linqto, Inc. to purchase stock before companies go public in an initial public offering.5
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`IV.
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`The SEC Complaint Charges Ripple but Attacks XRP and XRP Holders
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`On December 22, 2020, the SEC filed an enforcement action against named defendants
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`Ripple Labs (“Ripple”), along with two of its executives, co-founder and chairman Christian
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`Larsen (“Larsen”) and CEO Bradley Garlinghouse (“Garlinghouse”). Pl.’s Compl., ECF No. 4.
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`In both the original and Amended Complaint (“AC”), in the very first paragraph, the SEC labels
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`XRP itself as a “digital asset security” Id. at 1; AC at 1, ECF No. 46. By alleging “[f]rom 2013
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`through the present, Defendants sold over 14.6 billion units of a digital asset security called
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`XRP,” the SEC’s theory is that the named Defendants have conducted a public eight year
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`continuous and ongoing offering of unregistered securities. Id. Thus, the offering includes all
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`present-day sales and distributions of XRP. The Complaint is not limited to only direct sales by
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`the Defendant but includes all sales of XRP no matter the seller, including XRP Holders. Id. at 2.
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`In fact, an entire section of the Complaint is dedicated to Ripple’s alleged promises to create a
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`market, not only for Ripple’s sales, but for XRP Holders’ sales, as well. The SEC incorrectly
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`alleges that: “Defendants Promised to Undertake Significant Efforts to Develop and Maintain a
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`Public Market for XRP Investors to Resell XRP.” Id at 46. The SEC’s Complaint is riddled with
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`allegations directly attacking XRP Holders. The SEC dedicates another section of its AC alleging
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`5 Some XRP holders used their XRP to purchase shares of the company Ripple Labs through the
`Linqto service. This is a clear example of the difference between an alternative form of currency
`(XRP) and a true security (Ripple stock). Deaton Decl. Ex I.
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 13 of 36
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`XRP Holders have entered into a common enterprise with Ripple. AC at 51-55, ECF No. 46. The
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`SEC claims (wrongly) that: “Economic Reality Dictates that XRP Purchasers have No Choice
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`But to Rely on Ripple’s Efforts for the Success or Failure of Their Investment.” Id. at 50. The
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`SEC incorrectly asserts that XRP Holders have no independent options related to the utility of
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`XRP, without Ripple. Not true. The SEC also claims (wrongly) that XRP Holders lack the ability
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`to develop or grow the XRP ecosystem independent of Ripple’s efforts. See AC ¶¶ 285-289. In
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`other words, throughout the Complaint, the SEC alleges that all XRP, including the XRP
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`purchased, acquired, and/or utilized by XRP Holders are unregistered securities. The Complaint
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`has an entire section dedicated to the assertion that all “Purchasers of XRP Invested into a
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`Common Enterprise.” Id. at 50.
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`The SEC is alleging that any sale or transfer of XRP by any entity, business or individual is a
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`violation of Section 5 of the Securities Act.6 In attempting to meet Howey’s common enterprise
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`prong, the SEC absurdly claims that because “XRP investors stand to profit equally if XRP’s
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`popularity and price increase,”7 all XRP Holders entered into a common enterprise with Ripple.
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`This claim is ridiculous because the same statement equally applies to Bitcoin, Ether, XRP, or
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`even gold or silver investors. The language utilized by the SEC in the Complaint is both reckless
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`and dangerous as it could be applied not only to every cryptocurrency but every commodity. The
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`SEC’s claim that XRP itself is a security per se is not an implied or suggested claim. The SEC
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`6 AC ¶ 290 (“Investors who purchased XRP in the offering invested into a common enterprise
`with other XRP purchasers, as well as with Ripple”) (emphasis added). Apparently, according
`to the SEC, XRP Holders entered into a common enterprise with not only a company that many
`never heard of but also with every other unknown XRP Purchaser in the world. See also AC ¶
`291 (“Because XRP is fungible, the fortunes of XRP purchasers were and are tied to one another,
`and each depend on the success of Ripple’s XRP strategy.”).
`7 AC ¶ 292; see also AC ¶ 282 (“… which would serve Ripple’s economic interest and that of all
`XRP owners equally…the price of XRP rises and falls for XRP investors together and equally
`for all investors.”) (emphasis added).
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`8
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 14 of 36
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`actually asserts that the very “nature of XRP itself” makes it a security. AC ¶¶ 293, 353.8 Judge
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`Netburn quickly recognized this outlandish claim and questioned the SEC regarding this novel
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`(and dangerous) theory when she proclaimed: “Presumably under this theory then, every
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`individual in the world who is selling XRP would be committing a Section 5 violation based on
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`what you just said.” Hr’g Tr. 44:7-9 (Mar. 19, 2021).
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`If the SEC is successful in its claims against XRP, the SEC would have the authority to
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`regulate a vast number of non-parties, including digital asset exchanges, developers, vendors,
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`ordinary users, and retail holders of XRP. This would dramatically affect the entire secondary
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`retail market for XRP and possibly, all of cryptocurrency.
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`V.
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`XRP Holders Take Action
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` Concerned with the impact the SEC’s claims would have, including the suspension or
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`delisting of XRP on major U.S. exchanges, XRP Holders took immediate action to protect their
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`interests and filed a petition for a Writ of Mandamus against the Acting Chairman of the SEC
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`asking the Court to order the SEC to amend the Complaint to exclude the XRP owned and
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`utilized by XRP Holders. Deaton v. SEC, No. 1:21-cv-00001-WES (D. R.I. Jan. 1, 2021), ECF
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`No. 1.
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`In its Motion to Dismiss the Writ, the SEC made clear that this Honorable Court provides
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`the exclusive forum to hear all matters related to its enforcement action against Ripple and
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`XRP. The SEC argued:
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`Here, an avenue for judicial review of the Commission’s complaint against Ripple
`clearly exists. The Southern District of New York will decide whether the complaint
`warrants any relief. Thus, the Commission’s enforcement proceeding in the Southern
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`8 AC ¶ 293 (“The nature of XRP itself made it the common thread among Ripple, its
`management and all XRP holders.”) (emphasis added); AC ¶ 353 (“The very nature of XRP in
`the market – as constructed and promoted by Ripple – compels reasonable XRP purchasers to
`view XRP as an investment.”) (emphasis added); AC ¶ 291 (“Because XRP is fungible…”).
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`9
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 15 of 36
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`District of New York, brought under the Securities Act, supplies the exclusive method
`for testing the validity of the Commission’s complaint against Ripple.
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`Resp’ts Mot. to Dismiss at 12, Deaton v. SEC, No. 1:21-cv-00001-WES (D. R.I. Mar. 5, 2021),
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`ECF No. 11.
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`After reviewing the SEC’s motion to dismiss and considering the arguments and
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`statements contained therein, XRP Holders withdrew their petition and now move to intervene in
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`the current proceeding.
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`LEGAL STANDARD
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`“Rule 24 of the Federal Rules of Civil Procedure provides the criteria a putative
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`intervenor must meet to intervene either as of right or permissively.” Yang v. Kellner, No. 20
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`CIV. 3325, 2020 WL 2115412 at *1 (S.D.N.Y. May 3, 2020) (Torres, A.). Intervention as a
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`matter of right is governed by Rule 24(a) and permissive intervention is governed by Rule 24(b).
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`When considering permissive intervention, the Court “considers the same factors that it
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`considers for intervention as of right.” In re Reyes, No. 19 CIV. 7219, 2019 WL 6170901 at *1
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`(S.D.N.Y. Nov. 20, 2019) (Torres, A.) (quoting MASTR Adjustable Rate Mortgs. Trust 2006-
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`OA3 v. UBS Real Estate Secs., 2013 WL 139636, at *2 (S.D.N.Y. 2013).
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`Intervention as a right will be granted only if: (1) the motion is timely; (2) the applicant
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`asserts an interest relating to the property or transaction that is the subject of the action; (3) the
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`applicant is so situated that without intervention, disposition of the action may, as a practical
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`matter, impair or impede the applicant’s ability to protect its interest; and (4) the applicant’s
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`interest is not adequately represented by the other parties. In re Reyes, at *1 (citing MasterCard
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`Int’l Inc. v. Visa Int’l Serv. Assoc., Inc., 471 F.3d 377, 389 (2d Cir. 2006); see also In re
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`Holocaust Victim Assets Litig., (“HVAL”) 225 F.3d 191, 197 (2d Cir. 2000). “Failure to satisfy
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`any one of these requirements is a sufficient ground to deny the application.” R Best Produce,
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`10
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 16 of 36
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`Inc. v. Shulman-Rabin Mktg. Corp., 467 F.3d 238, 240 (2d Cir. 2006). However, denial of
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`
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`intervention is not mandatory if one element is not met. See Cole Mech. Corp. v. Nat’l Grange
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`Mut. Ins. Co., No. 06 CIV. 2875 LAK HBP, 2007 WL 2593000, at *2 (S.D.N.Y., Sept. 7, 2007)
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`(noting that the test is flexible, and courts generally look at all four factors rather than focusing
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`narrowly on anyone). “The Court has broad discretion to, on timely motion, permit anyone to
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`intervene who has a claim or defense that shares with the main action a common question of law
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`or fact, so long as the intervention does not unduly delay or prejudice the adjudication of the
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`original parties’ rights.” Whether a party may intervene is left to the Court’s sound discretion.
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`Brennan v. New York City Bd. Of Educ., 260 F.3d 123, 128 (2d Cir. 2001) (emphasis added).
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`I.
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`Intervention in SEC Enforcement Actions is Permitted
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`ARGUMENT
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` The SEC claims that intervention is precluded in a case involving the SEC unless it
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`consents. Pl.’s Resp. to Mot. To Intervene, at 3 (Mar. 26, 2021), ECF No. 85 (citing Securities
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`Exchange Act of 1934, 15 U.S.C. § 78u(g) (2018)). To support its claim, the SEC mistakenly
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`relies on SEC v. Caledonian Bank, Ltd., 317 F.R.D. 358 (S.D.N.Y. 2016). Actually, Caledonian
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`supports XRP Holders’ intervention. The case stated explicitly that, “[w]hile Section 21(g) bars
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`counterclaims against the SEC in enforcement actions, it does not preclude all forms of
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`intervention.” Caledonian at *368. (emphasis added). XRP Holders are not asserting any claims
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`or counterclaims against the SEC. XRP Holders seek intervention as a third-party defendant, not
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`as a third-party plaintiff asserting claims against the SEC. XRP Holders are de facto unnamed
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`defendants in this action (although XRP Holders are referenced throughout the Complaint).
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`Pursuant to Fed. R. Civ. P. 24(c), XRP Holders have provided the Court with Intervenor-
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`Defendant’s Proposed Answer to the First Amended Complaint. Deaton Decl. Ex. A.
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`11
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 17 of 36
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`The SEC makes passing reference to S.E.C. v. Credit Bancorp, Ltd., 194 F.R.D. 457
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`(S.D.N.Y. 2000) acknowledging that “[s]ome courts have held that Section 21(g) does not bar
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`intervention in SEC enforcement actions in a particular situation not presented here.” Pl.’s Resp.
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`at n. 4, ECF no. 85. After reading Credit Bancorp, XRP Holders understand why the SEC only
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`made slight reference to the case. Credit Bancorp discusses the disagreement among the courts
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`regarding whether § 21(g) precludes all applications to intervene. The conclusion of Credit
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`Bancorp, however, asserts that because § 21(g) makes no direct mention of intervention, it
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`cannot be reasonably interpreted to prohibit it per se. Credit Bancorp, Ltd., at 466. In sum, this
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`Honorable Court is not precluded from granting intervention to XRP Holders.
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` As stated, the SEC made clear that this Honorable Court “supplies the exclusive method for
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`testing the validity of the Commission’s complaint” against XRP. Resp’ts Mot. to Dismiss at 12,
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`Deaton v. SEC, No. 1:21-cv-00001-WES (D. R.I. Mar. 5, 2021), ECF No. 11. The SEC has
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`abrogated its responsibility and deferred to this Court’s authority. The SEC has attempted to
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`minimize its own conflicting views of XRP during the litigation of this case. In its response to
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`Defendants’ motion to compel discovery related to Bitcoin, Ether and XRP, the SEC basically
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`stated that its own views on whether an asset is a security are irrelevant. Pl’s Resp. at 7, Mar. 22,
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`2021, ECF No. 79. The SEC took the remarkable position that statements made by senior
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`officials of the SEC, including its chairman, add little value when deciding if an asset or
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`instrument constitutes a security. The SEC declared:
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`Statements of agency staff cannot bind the SEC or otherwise alter its decision. Nor are
`the SEC’s views as to the treatment under Howey of other digital assets relevant to
`whether XRP is a security. It is for the federal courts, which have for over 70 years…
`[produced an] abundance of caselaw interpreting and analyzing Howey,” to decide
`whether XRP is an investment contract.
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`12
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`Case 1:20-cv-10832-AT-SN Document 123 Filed 04/19/21 Page 18 of 36
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`Id. (citations omitted). Its grossly irresponsible for the SEC to suggest its own representations
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`are irrelevant so soon after it suddenly decided that a digital asset owned by millions of