“Incredibly, though, the FTCA prohibits lawsuits against federal agencies like the SEC for intentional wrongdoing, such as defamation, abuse of process or malicious prosecution — a common-law intentional tort designed to discourage meritless lawsuits.”
The SEC v. Ripple has infuriated XRP holders, who felt the regulator has betrayed its mission of protecting consumers by filing a complaint against Ripple Labs for an alleged unregistered sale of securities, which led to the delisting of XRP in the United States and general uncertainty toward the digital asset.
Ripple Labs, one of the world’s prominent blockchain companies has also expressed anger against the SEC’s enigmatic behavior when regulatory clarity should be expected from the financial watchdog that wants to take the lead in the oversight of the new asset class.
There’s broad sympathy toward Ripple, which saw the SEC doing nothing for seven years while XRP was distributed and then traded in the secondary markets with great popularity. It is public knowledge that Ripple executives tried their best to understand the regulators’ position toward XRP, but to no avail.
Now, one year and a half later, the tables have turned. The SEC is desperate to keep its internal documents away from Ripple and the public and evidence of conflict of interest has emerged.
Public opinion is increasingly siding with Ripple as this is no longer a typical civil lawsuit. It is about “unfettered abuse of enforcement power by federal administrative agencies”, said Frank Francone, a policy fellow at the Centennial Institute and a California attorney, who explained that under current federal law, even if Ripple wins, it has no remedy for the SEC’s abuse due to a gap in the law that needs to be fixed.
The op-ed, published on Law360, added that the SEC’s move – broad claim coupled with aggressive discovery motions – strongly suggests the SEC expected Ripple to fold quickly and beg for a settlement and that its legal arguments would never really be tested in court.
“They guessed wrong. Ripple is fighting back vigorously, and if the SEC’s sweeping arguments prevail, they could destroy trillions of dollars of stored wealth across multiple cryptocurrencies that face the same fate as XRP”.
Since the SEC gave no guidance despite many queries, except for Hinman’s 2018 speech declaring Bitcoin and Ethereum as non-securities, Ripple claims that if XRP is a security, the SEC failed to provide fair notice.
The SEC’s regulation by enforcement is now at trial, with SEC Commissioner Hester Peirce repeatedly accusing the practice of being harmful.
“The SEC’s behavior in SEC v. Ripple raises serious questions about what remedy defendants and XRP holders may have against an overbearing federal agency that has abused the power granted it by Congress. Unfortunately, today, there is no remedy whatsoever, no matter how ill-founded or malicious the SEC’s actions — the doctrine of sovereign immunity and the Federal Tort Claims Act (FTCA) protect the SEC and its officers from any consequences for intentional wrongdoing”, Frank Francone continued.
“Incredibly, though, the FTCA prohibits lawsuits against federal agencies like the SEC for intentional wrongdoing, such as defamation, abuse of process or malicious prosecution — a common-law intentional tort designed to discourage meritless lawsuits.”
Frank Francone added that the questions of the commission’s own perception of the merit of its case and its motivations for bringing this enforcement action must be seriously examined. Ripple’s Garlinghouse stated in court that it is “an abuse of prosecutorial discretion” but it may well be malicious prosecution.
Because the SEC and its officials remain protected under the doctrine of sovereign immunity no matter how malicious their actions, Frank Francone called for Congress to amend the FTCA.
Calls for FTCA reform are likely to grow in number as more evidence of the SEC’s abuse of power comes out.
