The Securities and Exchange Commission pushed back Wednesday after two executives of distributed ledger company Ripple asked a federal court to stop the U.S. regulator from subpoenaing personal financial records.
Lawyers representing CEO Brad Garlinghouse and co-founder/directors' board executive chairman Chris Larsen asked the court to quash the subpoenas sent to a group of banks in a March 11 letter, as Bloomberg reported at the time. In that letter, representatives said that "[t]he SEC’s multi-front attempt to troll through the Individual Defendant’s personal financial information in a non-fraud litigation, where the Defendants have already agreed to produce the relevant information regarding the challenged transactions, is a wholly inappropriate overreach."
“The Individual Defendants’ privacy interests are especially powerful here because the requests and subpoenas seek such a comprehensive intrusion into their personal financial lives," the letter, dated March 11, argued, charging that the "SEC seeks comprehensive records of every aspect of the Individual Defendants’ personal financial lives, including their wealth, their investment decisions, and what they purchased and when."
In a March 17 court letter, the SEC outlined three reasons for which it wants access to the records in question. First, they "are the only reliable way to de-anonymize their movements of XRP and determine exactly how much they raised from their XRP sales to the public."
The SEC also believes that the "financial records will show whether Individual Defendants personally funded efforts to increase the value of XRP, which is relevant to the "efforts of others" prong of the Howey test."
The agency went on to argue that the personal finance information could show to what extent Larsen and Garlinghouse's actions related to XRP could have been financially motivated:
"Finally, financial records will show how much Defendants—who insist they had no idea their conduct was wrongful—enriched themselves relative to other income, which bears on the powerful, personal financial motivation they had to look the other way when confronted with the legal consequences of their conduct."
The SEC filed suit against Ripple, Garlinghouse and Larsen in mid-December, alleging that the digital asset XRP is a security and that the firm's sales of XRP constituted an unregistered securities offering. Ripple has blasted the SEC for its legal moves, accusing the U.S. securities regulator of broad overreach. Garlinghouse described the SEC's efforts as "an assault on crypto at large" when the lawsuit was first filed.
Editors' Note: The lede has been corrected to reflect that the SEC's letter was submitted Wednesday, not Thursday.