Securities and Exchange Commission v. Ripple Labs Inc. et al.

Filing 441

ORDER denying #105 Motion to Dismiss; denying #110 Motion to Dismiss. For the foregoing reasons, the Individual Defendants' motions are DENIED. The Clerk of Court is directed to terminate the motions at ECF Nos. 105 and 110. SO ORDERED.. (Signed by Judge Analisa Torres on 3/11/2022) (kv)

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registration is required—without filing a registration statement. See Amend. Compl. ¶¶ 4, 9, 60,
230–31, 241–42, 289–94, 392–93. The SEC contends that Ripple and its executives promoted
XRP as an investment into a common enterprise that would increase in value and price based on
Ripple’s efforts. See, e.g., id. ¶¶ 104, 111, 230–57, 294. For the purposes of these motions, the
Individual Defendants do not contest that the SEC’s allegations plausibly show that Ripple’s sale
of XRP violated Section 5. See Larsen Mem. at 1–2, ECF No. 106; Garlinghouse Mem. at 2,
ECF No. 111.
Ripple was founded in 2012 by Larsen and a co-founder (the “Co-Founder”). See
Amend. Compl. ¶¶ 16, 18, 38. Around the time of Ripple’s founding, the Co-Founder began
creating the XRP Ledger, a software code that “operates as a peer-to-peer database, spread across
a network of computers, that records data respecting transactions, among other things.” Id.
¶¶ 38–39. After Ripple’s founding, the Co-Founder and others associated with Ripple created a
fixed supply of 100 billion XRP, id. ¶ 45, “a digital asset and the native token on the XRP
Ledger,” id. ¶ 48.
Larsen served as Ripple’s Chief Executive Officer (“CEO”) from September 2012
through December 2016. Id. ¶ 18. When Larsen was hired, Ripple was intended to “continue
the XRP Ledger and XRP projects.” Id. ¶ 42. In April 2015, Garlinghouse joined Ripple as its
Chief Operating Officer (“COO”). Id. ¶ 17. Then, in January 2017, Garlinghouse took over as
CEO, and Larsen began serving as the executive chairman of Ripple’s board of directors. Id.
¶¶ 17–18, 74.
I.

Larsen as CEO
In 2012, before Ripple began distributing XRP, Larsen and other Ripple executives

received two legal memoranda from a law firm. Id. ¶¶ 51–52, 56. These memoranda analyzed
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the risks associated with Ripple’s distribution and monetization of XRP. Id. ¶¶ 51–53. The law
firm warned that there was some risk XRP would be considered an investment contract by the
SEC, and would, therefore, be subject to federal securities laws. Id. ¶ 53. Specifically, the
memoranda stated that Ripple would face an increased risk of XRP being deemed a security if
individuals purchased XRP as a speculative investment, or if Ripple employees promoted the
idea that XRP could increase in price. See id.; see also ECF Nos. 108-1, 108-2. 1 The
memoranda also explained that XRP would likely not be classified as currency, Amend. Compl.
¶ 54, an opinion reiterated in a memorandum Ripple’s accountants sent to Larsen in 2013, id.
¶ 400.
By at least 2013, Larsen was aware of the contents of the memoranda and the possibility
that the SEC would consider XRP a security. See id. ¶ 56. In in a May 2014 email, Larsen
acknowledged that he received a large quantity of XRP because the legal memoranda advised
that XRP may be deemed a security, and he was being compensated for “personally assum[ing]
th[e] risk” of being classified as an issuer of securities. Id. ¶¶ 57–58; see also ECF No. 179-3. 2
From 2013 to 2014, Ripple and Larsen made efforts to create a market for XRP by
having Ripple distribute approximately 12.5 billion XRP to programmers through “bounty
programs” that paid them for reporting problems in the XRP Ledger’s code. Amend. Compl.
¶ 61. Ripple also distributed small amounts of XRP to anonymous developers and others to help
establish a trading market for XRP. Id. During that time, Ripple began to make public

The Court shall consider the legal memoranda and other such documents relied on in the complaint because they
are “integral” to the amended complaint. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see
also Amend. Compl. ¶¶ 51–60. But, in doing so, the Court continues to draw all reasonable inferences in the SEC’s
favor. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1003 (9th Cir. 2018).
2
See supra n.1.
1

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statements with respect to XRP that gave investors reason to believe that Ripple’s efforts would
produce profits. Id. ¶¶ 62–64.
In August 2013, Ripple started selling XRP in exchange for fiat currencies and other
digital assets, such as bitcoin. Id. ¶ 72. Both Ripple and Larsen intended for their distribution of
XRP to achieve “[n]etwork [g]rowth” and raise funds for Ripple’s operations. Id. ¶ 65. As
Larsen explained, Ripple was “keeping 25% of . . . XRP . . . to cover the bills, and using the rest
of it to incent market makers, gateways, [and] consumers to come onto the protocol.” Id. ¶ 300.
Larsen planned the initial stage of Ripple’s XRP offering by approving the timing and amount of
the offers and sales to: (1) purchasers in the open market (“Market Sales”); (2) investment
funds, wealthy individuals, or other sophisticated investors (“Institutional Sales”); and (3) others
enlisted to assist Ripple’s efforts to develop an XRP market (the “Other XRP Distributions”). Id.
¶ 73; see also id. ¶¶ 205, 207. As CEO, Larsen initiated and approved Ripple’s Market Sales of
XRP. Id. ¶ 92; see also id. ¶ 100. He had final decision-making authority over which trading
venues to use for Market Sales and how much XRP to sell in a particular venue. Id. ¶ 98; see
also id. ¶ 101. And, Larsen strategized with other Ripple employees to adjust their selling plan
to “stabilize and/or increase the XRP price.” Id. ¶ 101; see also id. ¶¶ 205–06.
The goal of Ripple’s XRP sales was achieving as widespread a distribution of XRP as
possible, which was necessary to promote an “aftermarket” of buyers and sellers of XRP. Id.
¶ 89. In a public interview, Larsen explained that one of Ripple’s “key roles is making sure that
[Ripple] distribute[s] [XRP] as broadly in a way that adds as much utility and liquidity as [it]
possibly can.” Id. ¶ 265. He stated that he thought the incentives of Ripple and XRP purchasers
“are very well aligned” because, “for [Ripple] to do well [it] [has] to do a very good job in

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protecting the value of XRP and the value of the network.” Id. Larsen described protecting the
value of XRP as the “guiding principle” of Ripple’s distribution. Id.
When Garlinghouse joined Ripple as COO, he began assisting in Ripple’s distribution of
XRP. He worked with Larsen to coordinate the distribution strategy to increase XRP’s price.
See id. ¶¶ 101, 205, 207, 211. Garlinghouse also began to oversee, direct, and lead Ripple’s
efforts to make XRP available for purchasers to buy and sell on digital asset trading platforms
incorporated in the United States and abroad. Id. ¶¶ 154–59. And, he participated in weekly
XRP sales meetings where he exercised decision-making authority over the timing and amount
of Ripple’s XRP sales. Id. ¶ 424.
Since at least 2013, Ripple and Larsen tried to make Institutional Sales “to obtain
essential funding for Ripple’s operations and develop a speculative trading market in XRP.” Id.
¶ 102; see also id. ¶¶ 104, 110–24. Garlinghouse participated in these efforts when he was hired
as COO. See id. ¶ 110. Larsen and Garlinghouse both played significant roles in negotiating and
approving Ripple’s Institutional Sales as well as other offers and sales of XRP to institutional
investors. Id. In 2015, Garlinghouse negotiated an institutional investor’s purchase of XRP in
connection with the investor’s formation of a private investment fund “whose sole purpose
would have been to speculate on XRP as an investment.” Id. ¶ 111. Both Garlinghouse and
Larsen received drafts of the potential offering documents for that fund. Id. During those
negotiations, Larsen received an email from the fund’s attorney advising him of some concerns
about XRP being regulated as a security even though it was considered a “virtual currency” in
some contexts. See id. ¶ 401. In 2016, Larsen and Garlinghouse approved a sale to an
institutional investor described as an “institutional reseller.” Id. ¶ 116. This institutional

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investor explained to Garlinghouse that he purchased XRP because Larsen had indicated to him
that “XRP was central to Ripple’s success.” Id. ¶ 118.
As CEO, Larsen engaged in other efforts to further Ripple’s distribution of XRP. In
2015, Larsen co-founded RippleWorks, an entity that invests in XRP-related projects “to further
Ripple’s goals of achieving widespread trading of XRP in the market.” Id. ¶¶ 137–38.
Garlinghouse was also aware of RippleWorks’ activities. See id. ¶ 141.
In May 2015, Ripple agreed to settle charges brought by the United Stated Department of
Justice and the United States Financial Crimes Enforcement Network for failing to register as a
“Money Services Business” under the Bank Secrecy Act and for failing to comply with other
regulatory requirements with respect to XRP sales. Id. ¶ 379. The settlement agreement called
XRP a “virtual currency.” Id.
II.

Garlinghouse as CEO
In January 2017, Garlinghouse took over as Ripple’s CEO. Id. ¶ 17. Larson remained

executive chairman of Ripple’s board of directors. Id. ¶¶ 18, 74. Garlinghouse, Larsen, and two
other individuals made up the “XRP Sales Committee,” a four-member committee that made
XRP distribution decisions at Ripple. Id. ¶ 75. Garlinghouse, as CEO, approved the timing and
amounts of offers and sales of XRP, id. ¶ 76; see also id. ¶¶ 199, 205, and had final decisionmaking authority over which trading venues to use for Market Sales and how much XRP to sell
in a particular venue, id. ¶ 98. As chairman of the board, Larsen was consulted on offers and
sales, id. ¶ 76, and participated in decisions regarding Ripple’s sales strategy, id. ¶ 199. In
February 2017, Larsen expressed the view that “most volume in the [cryptocurrency] space is
speculation in advance of enterprise and eventually consumer flows.” Id. ¶ 398. Garlinghouse
also understood the importance of speculative investing, as he “instructed certain Ripple
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employees to ‘proactively’ attempt to increase speculative trading value with positive XRP
news.” Id. ¶ 212. In addition, Garlinghouse was informed by a Ripple employee that Ripple’s
goal was to “drive XRP speculative trading volume.” Id. ¶ 352.
In 2017 and 2018, Larsen and Garlinghouse worked together to convince digital asset
platforms to list XRP. See id. ¶¶ 160, 168. As CEO, Garlinghouse was heavily involved in
attempts to partner with such platforms. Id. ¶¶ 165–66. Garlinghouse expressed that Ripple
viewed these efforts as an example of Ripple “doi[ng] whatever [it] can to invest in the success
of the XRP ecosystem,” which was “consistent with what [he had] also proactively said”
publicly about Ripple’s efforts. Id. ¶ 166. Garlinghouse also made statements suggesting that he
was aware that some digital asset platforms may refuse to list XRP because they were concerned
it was a security, and he helped prepare talking points intended to dispel the notion that XRP was
a security or that a digital asset platform had refused to make XRP available to the public out of
concerns that XRP was a security. Id. ¶ 167.
Larsen and Garlinghouse also worked together to further Ripple’s sales to institutional
investors. In 2017, Larsen assisted with arranging a sale of 14.8 billion XRP to an institutional
investor. Id. ¶¶ 113–14. In 2018, Garlinghouse signed an agreement with an institutional
investor that described itself as “operat[ing] sales and exchange service[s] of crypto-assets to
offer safe and secure transactions of crypto-assets for as many people as possible.” Id. ¶ 120
(alterations in original).
To assuage investor concerns, on May 16, 2017, Ripple announced that it would place 55
billion XRP, or most of its current holdings, into a “cryptographically-secured escrow” that
would restrict Ripple to accessing only one billion XRP every month (the “XRP Escrow”). Id.
¶ 223. Garlinghouse established the XRP Escrow, id. ¶ 426, and explained that it was meant to
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address the concerns of XRP investors about Ripple’s ability to sell its billions of XRP into the
market “at any time,” id. ¶ 221; see also id. ¶¶ 253, 336. The escrow plan was intended, in part,
to “secur[e] speculative liquidity” in XRP and “drive a material increase in XRP trading
volume/liquidity.” Id. ¶ 225 (alteration in original). Both Larsen and Garlinghouse were
instrumental in the formation of the XRP Escrow by developing and approving the idea. Id.
¶ 224. Ripple and Garlinghouse publicly touted the formation of the XRP Escrow “as proof that
Ripple and XRP holders shared a common interest in the success of Ripple’s efforts as to XRP
and as one of Ripple’s many efforts to manage the trading market for XRP.” Id. ¶ 228; see also
id. ¶ 253.
Garlinghouse was also involved in Ripple’s efforts to promote XRP’s use on a platform
intended to allow money-transmitting businesses to buy XRP in one jurisdiction, and transfer and
sell it in another location for the local fiat currency. See id. ¶¶ 131, 362, 369, 370. Although
Ripple receives only de minimis fees from the cross-border payment platform, Garlinghouse
views “the value creation of [that platform] as driving the liquidity in the XRP markets.” Id.
¶ 374.
As CEO, Garlinghouse made numerous statements regarding Ripple’s relationship to
XRP and its efforts to increase XRP’s liquidity and price. Id. ¶ 253. In a June 2017 email, he
said that Ripple had a “proven track record of being [a] good steward[] for XRP.” Id. He
explained that a decrease in the price of XRP “would certainly be bad for Ripple,” id., and
reminded Ripple’s equity investors and advisors that Ripple remained “committed to making
XRP the best digital asset for payments,” id. ¶ 254. In December 2017, Garlinghouse gave a
public interview in which he explained that Ripple prioritized the volume of XRP sales and XRP
liquidity, id. ¶ 256, and he posted on Twitter that “[a] healthy $XRP market and healthy $XRP
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ecosystem is CRITICALLY important to [him],” id. ¶ 303. And, in January 2018, Garlinghouse
posted on Twitter that “fostering a healthy $XRP ecosystem is a top priority @Ripple.” Id.
¶¶ 306–07. Moreover, in a February 2020 interview at the New York Stock Exchange,
Garlinghouse explained that Ripple’s efforts to create a “use” for XRP should correlate with a
potential increase in XRP price. Id. ¶ 261. In that same interview, Garlinghouse stated that
markets would move “from that speculation that has driven the crypto market to utility.” Id.
¶ 262.
Garlinghouse also expressed that Ripple was “focused on driving utility from” XRP, and
that, if Ripple was successful, it would be “good for the liquidity of the whole ecosystem.” Id.
In a May 2017 article published on Ripple’s website, Garlinghouse further explained that
Ripple’s “goal in distributing XRP is to incentivize actions that build trust, utility and liquidity.”
Id. ¶ 266; see also ECF No. 114-8. 3 And, in a December 2017 interview, Garlinghouse claimed
that XRP’s price had recently risen because of Ripple’s efforts to solve “a real problem . . .
around cross-border payments,” which made people “excited.” Id. ¶ 278. Moreover, in another
interview in March 2018, Garlinghouse reminded investors that “[t]here’s no party more
interested in the success of the XRP ecosystem than Ripple . . . because we own a lot of XRP.”
Id. ¶ 279. He stated that Ripple had made investments and forged partnerships “in order to make
sure that XRP is the most useful asset out there for solving a cross border payment problem.” Id.
During his time as CEO, Garlinghouse made many other public statements about
Ripple’s clear interest and investment in promoting the price of XRP and its distribution, see id.
¶¶ 308–11, 326, 338, 356, and the ways in which Ripple’s efforts would drive up the price of
XRP, see id. ¶¶ 318, 325, 343, 346, 348. Garlinghouse also made statements that evinced a

3

See supra n.1.

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belief that XRP’s purchasers viewed their holdings as a speculative investment. Id. ¶¶ 330, 334,
337, 344, 347, 421. For example, he said that digital assets, like XRP, “aren’t currencies,”
because “[v]ery few people . . . have used . . . XRP to buy something.” Id. ¶ 386. And, he once
stated that Ripple’s activities have “driven market interest in buying XRP as a speculative
investment.” Id. ¶ 344.
During his tenure at Ripple, Garlinghouse received some warnings that XRP may be
classified as a security. In March 2017, Ripple’s chief compliance officer advised Garlinghouse
that “XRP certainly has some ‘securities-type’ characteristics.” Id. ¶ 407; see also ECF No. 2261. 4 The officer warned Garlinghouse that Ripple “need[s] to hone [its] playbook/messaging” to
avoid such a classification. Amend. Compl. ¶ 407; see also ECF No. 226-1. That same officer
later advised Garlinghouse that Ripple needed to ensure the language it used in employee offer
letters “doesn’t put [Ripple] at risk of XRP sounding like a security.” Amend. Compl. ¶ 408; see
also ECF No. 226-3. 5
Moreover, in July 2017, the SEC issued the Report of Investigation Pursuant to Section
21(a) of the Securities Exchange Act of 1934: The DAO (the “DAO Report”), which advised
“those who would use . . . distributed ledger or blockchain-enabled means for capital raising[] to
take appropriate steps to ensure compliance with the U.S. federal securities laws.” Amend.
Compl. ¶ 37. 6 The DAO Report found that the particular digital assets at issue were investment
contracts and, therefore, were properly considered securities. Id. After the DAO Report’s
publication, Garlinghouse made comments on Ripple’s website indicating that he read the report.

See supra n.1.
See supra n.1.
6
The Court shall consider the entirety of the DAO Report, SEC, No. 81207, Report of Investigation Pursuant to
Section 21(a) of the Securities Exchange Act of 1934: The DAO (2017),
https://www.sec.gov/litigation/investreport/34-81207.pdf, because it is a proper subject of judicial notice, see United
States v. Strock, 982 F.3d 51, 63 (2d Cir. 2020).
4
5

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Id. ¶ 409. In December 2017, Ripple’s public relations firm notified Garlinghouse that the SEC
Chairman recently said that “[m]erely calling a token a ‘utility’ token or structuring it to provide
some utility does not prevent the token[] from being a security.” Id. ¶ 411. The firm decided to
provide that notification to Garlinghouse because there “had been a concern to have XRP
considered a security.” Id.
In January 2018, when seeking to list XRP on a digital asset platform, Garlinghouse
submitted an application in which he acknowledged “that whether or not a digital asset may be
considered a security is an important consideration for many in the digital asset ecosystem” and
that Ripple had “received a legal memorandum from a reputable law firm” regarding the status
of XRP under the federal securities laws. Id. ¶ 414. Approximately four U.S.-based digital asset
platforms asked Ripple for a legal opinion as to the status of XRP under the federal securities
laws, and Garlinghouse was informed that, after Ripple failed to provide such an opinion, at least
one platform declined to list XRP because of concerns XRP would be deemed a security. Id.
¶¶ 415, 418. Garlinghouse also acknowledged that “Bloomberg put out there that [certain
platforms] are hesitant to list XRP because of concerns about it being a security.” Id. ¶ 419.
And, Garlinghouse, along with Larsen, met with a potential investor and “spoke for a while on
the outstanding issue of whether XRP gets classified as a security.” Id. ¶ 420. In that
conversation, Garlinghouse noted that, although he was “optimistic” XRP would not be
considered a security, he could “[]not guarantee that.” Id. (alteration in original); see also ECF
No. 226-2. 7

7

See supra n.1.

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III.

Larsen’s and Garlinghouse’s Personal Sales of XRP
In addition to facilitating Ripple’s distribution of XRP, Larsen and Garlinghouse sold

their personal XRP in a way that was intended to strike a balance between maximizing profits
while not depressing the price of XRP. Amend. Compl. ¶ 173; see also id. ¶¶ 85–87, 191.
Larsen and his wife have sold over 1.7 billion XRP for at least $450 million. Id. ¶ 86.
Garlinghouse has sold over 357 million XRP for approximately $159 million. Id. ¶ 87. Larsen
described his personal sale of XRP as “constructive” to the overall XRP market because of the
“widely held view that over time, it[’s] better to have widely held assets.” Id. ¶ 179.
Garlinghouse, in discussing his personal XRP holdings, made representations that he considered
XRP to be an investment vehicle, id. ¶¶ 42, 347, and, on multiple occasions, stated that he was
“long XRP,” id. ¶ 347.
From 2017 to at least 2020, Larsen and Garlinghouse offered and sold their XRP. These
transactions were consummated on various digital asset trading platforms, including four
incorporated in the United States and one incorporated abroad, but with a principal place of
business in New York. Id. ¶¶ 177, 186. At least two of the platforms incorporated in the United
States were also U.S.-based. Id. ¶¶ 162, 415–16. Larsen and Garlinghouse also opened accounts
with one platform’s U.S.-based wholly owned subsidiary. Id. ¶¶ 177, 186. At times,
transactions on these digital asset trading platforms occurred when XRP was “allocated to
investors’ accounts in the records of the platform.” See id. ¶ 35; see also id. ¶ 154. Larsen and
Garlinghouse also engaged the services of a global digital asset trading firm with an office in the
United States to make offers and sales of their XRP. Id. ¶¶ 96, 174, 183. Both Larsen and
Garlinghouse directed their XRP offers and sales from within the United States, id. ¶ 176; see

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also id. ¶ 185, and made XRP offers and sales to persons in the United States, id. ¶ 178; see also
id. ¶ 187.
ANALYSIS
I.

Legal Standard
To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient

factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. A plaintiff is not required to provide “detailed factual allegations,” but he must assert “more
than labels and conclusions.” Twombly, 550 U.S. at 555. Additionally, “where a particular state
of mind is a necessary element of a claim, [a plaintiff’s] pleading of that state of mind must be
plausible and supported by factual allegations.” Biro v. Conde Nast, 963 F. Supp. 2d 255, 278
(S.D.N.Y. 2013) (citing Iqbal, 556 U.S. at 686–87), aff’d, 807 F.3d 541 (2d Cir. 2015), and aff’d,
622 F. App’x 67 (2d Cir. 2015). On a Rule 12(b)(6) motion, the court may consider only the
complaint, documents attached to the complaint, matters of which a court can take judicial
notice, and documents that the plaintiff knew about and relied upon when drafting the complaint.
See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).
II.

Application
A. Aiding and Abetting Liability
To hold a defendant liable as an aider and abettor in a civil enforcement action, the SEC

must plead and ultimately prove “(1) the existence of a securities law violation by the primary
(as opposed to the aiding and abetting) party; (2) knowledge of this violation on the part of the
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aider and abettor; and (3) substantial assistance by the aider and abettor in the achievement of the
primary violation.” SEC v. Apuzzo, 689 F.3d 204, 206 (2d Cir. 2012) (quotation marks omitted).
After the Dodd-Frank Act took effect in 2010, the SEC may also satisfy the “knowledge”
requirement by showing that the defendant was “reckless” in relation to the primary party’s
violation. See SEC v. Yorkville Advisors, LLC, 305 F. Supp. 3d 486, 511 (S.D.N.Y. 2018); see
also Dodd-Frank Wall St. Reform & Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376,
§ 929O (2010) (codified at 15 U.S.C. § 78(t)(e)). Courts cannot consider the three requirements
in isolation from one another because “[s]atisfaction of the knowledge requirement will depend
on the theory of primary liability, and there may be a nexus between the degree of knowledge
and the requirement that the alleged aider and abettor render substantial assistance.” SEC v.
Espuelas, 905 F. Supp. 2d 507, 517 (S.D.N.Y. 2012) (“Espuelas III”) (quoting SEC v. DiBella,
587 F.3d 553, 566 (2d Cir. 2009)). Indeed, courts have found that “‘[a] high degree of
substantial assistance may lessen the SEC’s burden in proving scienter’ and vice versa.” SEC v.
Wey, 246 F. Supp. 3d 894, 928–29 (S.D.N.Y. 2017) (quoting Apuzzo, 689 F.3d at 215).
Here, the SEC alleges that the Individual Defendants aided and abetted Ripple’s violation
of Section 5 by assisting in Ripple’s unregistered sale of XRP. See Amend. Compl. ¶¶ 436–40.
For the purposes of their motions, neither Larsen nor Garlinghouse argue that Ripple did not
violate Section 5 by making unregistered sales of XRP. See Larsen Mem. at 1–3; Garlinghouse
Mem. at 1–4. Therefore, the Court assumes that the SEC has adequately alleged the first
requirement—the existence of a securities law violation by the primary party. In order to prove
the remaining requirements, the SEC must show that the Individual Defendants “joined the
specific venture and shared in it, and that [their] efforts contributed to its success.” DiBella, 587
F.3d at 566 (citation omitted).
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1. Knowledge
The Individual Defendants argue that the SEC fails to sufficiently allege they had
knowledge of Ripple’s alleged violations of Section 5. See Larsen Mem. at 1–3; Garlinghouse
Mem. at 1–4. 8 The Court disagrees.
Under 15 U.S.C. § 77o(b), liability can be imposed on a person who aids and abets a
violation of Section 5 if that person “knowingly or recklessly provides substantial assistance to
another person in violation of [Section 5].” In order to show that the Individual Defendants had
knowledge of Ripple’s alleged Section 5 violations, the SEC must show their general awareness
of their overall role in Ripple’s illegal scheme. See SEC v. Paulsen, No. 18 Civ. 6718, 2020 WL
1911208, at *5 (S.D.N.Y. Apr. 18, 2020) (“Paulsen I”) (citation omitted). Notably, the SEC
need not demonstrate that the Individual Defendants were aware that Ripple’s scheme was
illegal. See SEC v. Mattessich, 407 F. Supp. 3d 264, 272–73 (S.D.N.Y. 2019). Rather, the SEC
must show that the Individual Defendants knew, or recklessly disregarded, the facts that made
Ripple’s scheme illegal. See id. As the D.C. Circuit explained:
Knowledge means awareness of the underlying facts, not the labels that the law
places on those facts. Except in very rare instances, no area of the law[,] not even
the criminal law[,] demands that a defendant have thought his actions were illegal.
A knowledge of what one is doing and the consequences of those actions suffices.
SEC v. Falstaff Brewing Corp., 629 F.2d 62, 77 (D.C. Cir. 1980); cf. Bryan v. United States, 524
U.S. 184, 192 (1998) (explaining that “the knowledge requisite [for a] knowing violation of a
statute is factual knowledge as distinguished from knowledge of the law” (citation omitted)). 9
A violation of Section 5 is a strict liability offense, which means that the SEC need not “prove scienter or
negligence by [Ripple]” to establish its liability. See SEC v. Genovese, No. 17 Civ. 5821, 2021 WL 1164654, at *2
(S.D.N.Y. Mar. 26, 2021) (citing SEC v. Universal Major Indus. Corp., 546 F.2d 1044, 1046 (2d Cir. 1976)).
9
Cases assessing the mens rea requirement for aiding and abetting strict liability offenses in the criminal context
support such an interpretation. In criminal cases, courts generally find that the government must show “that the
putative aider and abettor knew the facts that make the principal’s conduct [unlawful].” United States v. Ford, 821
F.3d 63, 74 (1st Cir. 2016). And, “if the conduct of an aider and abettor is sufficient to impose criminal liability, a
fortiori it is sufficient to impose civil liability in a government enforcement action.” Apuzzo, 689 F.3d at 212.
8

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Next, the Individual Defendants argue that, even if the SEC need not show that they
knew or recklessly disregarded that Ripple’s actions violated Section 5, the SEC must show that
they knew or recklessly disregarded that Ripple’s actions were somehow otherwise “improper.”
See Larsen Mem. at 1, 12; Garlinghouse Mem. at 18–19. Again, the Court disagrees.
The Court rejects the Individual Defendants’ arguments primarily because a standard that
requires showing knowledge of “improper” activity would result in the imposition of a
“willfulness” requirement that is absent from 15 U.S.C. § 77o(b). 10 In the securities law context,
the Second Circuit has explained that the “willfulness” requirement for imposition of criminal
liability requires a showing that the defendant had “knowledge that the conduct [was] unlawful,”
see United States v. Kosinski, 976 F.3d 135, 154 (2d Cir. 2020) (citation omitted), cert. denied,
141 S. Ct. 2755 (2021), or knew “that he was doing a wrongful act,” United States v. Tagliaferri,
820 F.3d 568, 573 (2d Cir. 2016) (citation omitted); see also United States v. Schlisser, 168 F.
App’x 483, 485 (2d Cir. 2006). By contrast, the text of the statute at issue here, which imposes
civil liability, does not include a “willfulness” requirement, and, therefore, does not support an
interpretation that reads in such a requirement. Compare 15 U.S.C. § 77o(b) (imposing liability
on “any person that knowingly or recklessly provides substantial assistance to another person in
violation of a provision of this subchapter” (emphasis added)), with 15 U.S.C. § 77x (imposing
criminal liability on “[a]ny person who willfully violates any of the provisions of this subchapter”
(emphasis added)).

The Court also rejects Garlinghouse’s argument that finding the Individual Defendants liable solely upon a
showing that they knew the facts constituting Ripple’s violations would be tantamount to imposing strict liability for
aiding and abetting. See Garlinghouse Mem. at 17–18; Garlinghouse Reply at 4. This argument reflects a
misunderstanding of strict liability because such liability may be imposed “even if [the violator] did not have
knowledge of facts giving rise to the violation.” Rock of Ages Corp. v. Sec’y of Lab., 170 F.3d 148, 156 (2d Cir.
1999). Because strict liability generally does not depend on knowledge of these facts, a rule that imposes such a
requirement is not imposing strict liability for aiding and abetting.

10

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The Court also finds no basis for the conclusion that Congress intends for a willfulness
requirement to be imposed absent any textual support. Indeed, Congress’ recent activity in this
area, the passage of the Dodd-Frank Act, supports a reading of § 77o(b) that expands rather than
contracts liability for aiding and abetting violations of the securities laws. Cf. Wey, 246 F. Supp.
3d at 926–27 (explaining that the Dodd-Frank Act expanded aiding and abetting liability by
allowing the SEC to hold a person liable for recklessly providing substantial assistance).
The Individual Defendants cite no binding authority imposing a willfulness requirement
for aiding and abetting liability under § 77o. Moreover, the Court rejects the Individual
Defendants’ interpretation of three cases from this district: SEC v. Paulsen, 11 SEC v.
Mattessich, 12 and SEC v. Espuelas. 13 The Individual Defendants generally mischaracterize these
The Individual Defendants cite two different orders in SEC v. Paulsen that they contend support requiring the
SEC to show that they knew Ripple’s conduct was improper. See Paulsen I, 2020 WL 1911208; SEC v. Paulsen,
No. 18 Civ. 6718, 2020 WL 6263180, at *14 (S.D.N.Y. Oct. 23, 2020) (“Paulsen II”). Garlinghouse cites a passage
from Paulsen I where the district court stated that a defendant would not be liable if he “acted merely to protect [codefendants] from discipline by their respective employers, and without any knowledge or reason to suspect that they
had entered into a quid pro quo arrangement that violates the securities laws.” Garlinghouse Mem. at 19 (quoting
Paulsen I, 2020 WL 1911208, at *7). This passage does not show that the district court required the SEC to
demonstrate that the defendant knew the quid pro quo arrangement violated the securities laws. Rather, it merely
shows that the court required the SEC to demonstrate that the defendant knew that the primary violator entered into
a quid pro quo arrangement, and that the quid pro quo arrangement entered into by the primary violator violated the
securities laws. See Paulsen I, 2020 WL 1911208, at *5–8. Larsen’s citation to Paulsen II fares no better. Larsen
Mem. at 12. In Paulsen II, the district court found that it was “not necessary for the SEC to demonstrate that [the
defendant] knew all of the details of the crime” because the SEC had shown that the defendant’s “conduct and
actions demonstrate that he was general[ly] aware[] of the quid pro quo and its illegality.” Paulsen II, 2020 WL
6263180, at *14 (quotation marks and emphasis omitted). This order merely stands for the proposition that, if the
SEC can show knowledge of illegality, it need not show knowledge of all of the elements that make up the primary
violation. See Ford, 821 F.3d at 74–75.
12
In Mattessich the district court did not find that the SEC needed to show that the defendants “knew their conduct
to be wrongful.” Mattessich, 407 F. Supp. 3d at 272; see also Larsen Mem. at 12; Garlinghouse Reply Mem. at 5.
Rather, the district court, in responding to the defendant’s argument that such a showing was necessary, found that
the SEC had alleged that the defendants knew their conduct was wrong. Mattessich, 407 F. Supp. 3d at 272. The
district court did not determine that those allegations were required.
13
In parsing the knowledge requirement for aiding and abetting a violation of Section 13 of the Exchange Act, 15
U.S.C. § 78m(b)(2)(A), the district court in SEC v. Espuelas set out a three-step inquiry which appears to include a
requirement that the SEC show that a defendant was aware that it was “improper” for the primary violator to
recognize revenue from certain transactions. Espuelas III, 905 F. Supp. 2d at 518. But, in that same order, the
district court also stated that “the SEC need only demonstrate that [a defendant] knew of facts that contradicted the
substance of the reported accounting.” Id. at 524. And, in two other orders in the same case, the district court
reiterated that the SEC need show only that the defendant “knew that [the primary violator’s] statements to the SEC
overstated the amount of its revenue.” See SEC v. Espuelas, 908 F. Supp. 2d 402, 410 (S.D.N.Y. 2012) (“Espuelas
II”); SEC v. Espuelas, 767 F. Supp. 2d 467, 475–76 (S.D.N.Y. 2011) (“Espuelas I”). In light of the apparent conflict
11

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cases’ holdings, and, to the extent these cases may provide some support for the imposition of a
willfulness requirement, the Court does not find them persuasive.
2. Substantial Assistance
Larsen also challenges the SEC’s allegations regarding his provision of substantial
assistance in furtherance of Ripple’s alleged violations of Section 5. See Larsen Mem. at 19–21.
To satisfy the substantial assistance component of aiding and abetting, the “SEC must
show that the defendant in some sort associate[d] himself with the venture, that he participate[d]
in it as in something that he wishe[d] to bring about, [and] that he [sought] by his action to make
it succeed.” Apuzzo, 689 F.3d at 206 (quotation marks omitted) (alterations in original). In other
words, the defendant must “consciously assist[] the commission of the specific crime in some
active way.” SEC v. Mudd, 885 F. Supp. 2d 654, 670–71 (S.D.N.Y. 2012) (citation omitted)
(alteration in original). When evaluating whether a defendant rendered substantial assistance,
courts may consider the degree of knowledge the defendant has of the primary violation because
when the SEC plausibly alleges a high degree of actual knowledge, this lessens the burden it
must meet in alleging substantial assistance. Apuzzo, 689 F.3d at 206.
3. The SEC’s Allegations
Turning to the SEC’s allegations, the Court finds that the SEC has plausibly alleged that
the Individual Defendants had knowledge of or recklessly disregarded the facts that allegedly
made Ripple’s sale of XRP amount to the unregistered sale of securities, and that Larsen
provided substantial assistance. 14
that would arise if the language from Espuelas III is given the meaning the Individual Defendants ascribe to it, see,
e.g., Larsen Mem. at 12 (citing Espuelas III for the proposition that “the SEC must show that the defendant knew or
recklessly disregarded that the underlying activity that constitutes the primary violation was ‘improper’”), the Court
rejects the Individual Defendants’ interpretation of Espuelas III.
14
Because Garlinghouse does not challenge the SEC’s allegations regarding his provision of substantial assistance,
see generally Garlinghouse Mem., the Court shall address these allegations only to the extent they provide support
for Garlinghouse’s knowledge of Ripple’s alleged violations.

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As to Larsen, the SEC alleges that he played a large role in orchestrating Ripple’s sale of
XRP—allegations that support both his knowledge and his rendering of substantial assistance.
See Wey, 246 F. Supp. 3d at 928–29; Mudd, 885 F. Supp. 2d at 670–71. For example, Larsen
oversaw Ripple’s sale of XRP, see, e.g., Amend. Compl. ¶¶ 73, 92, 98, 100, was directly
involved in Ripple’s strategy for supporting XRP’s price, see id. ¶¶ 98, 100–01, served on the
“XRP Sales Committee,” see id. ¶ 75, and attempted to make sales to institutional investors to
obtain essential funding for Ripple’s operations, see id. ¶¶ 102, 104, 110, 112–13, 116.
Furthermore, the SEC alleges that Larsen’s personal sale of XRP was intended to assist with
Ripple’s distribution and the creation of a market for XRP investment. See id. ¶ 173. These
allegations plausibly show that Larsen substantially assisted in and knew about Ripple’s
unregistered offer and sale of XRP.
The SEC also alleges facts that plausibly show that Larsen knew that purchasers of XRP
may have viewed those purchases as an investment in a common enterprise with a reasonable
expectation of profit based on Ripple’s efforts. See, e.g., id. ¶¶ 244, 246, 265, 300. For example,
the SEC claims that Larsen knew that Ripple’s activities were designed to protect the value of
XRP, id. ¶ 265, that Larsen indicated to one institutional investor that XRP was “central to
Ripple’s success,” id. ¶ 118, and that Larsen was aware that XRP sales were funding Ripple’s
operations, see also id. ¶¶ 90, 294, 300. The SEC also asserts that Larsen understood that XRP
was being sold to investors, id. ¶¶ 89, 397–98, including investors engaging in speculation, id.
¶¶ 102, 232, 398. Moreover, the SEC alleges facts that plausibly suggest that Larsen was aware
of the risk that Ripple’s sale of XRP could be classified as an investment contract, and thus, as a
security. See, e.g., ¶¶ 51–57, 399–401; see also Ford, 821 F.3d at 74–75.

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The SEC’s claims regarding Garlinghouse’s knowledge of Ripple’s activities are
similarly sufficient. These allegations plausibly show that as COO and CEO Garlinghouse also
knew that Ripple was making unregistered offers and sales of XRP. See, e.g., id. ¶¶ 75–76, 98
104, 110, 116, 120, 154, 157–60, 199 424. The facts alleged also plausibly demonstrate that
Garlinghouse viewed XRP as an investment, see, e.g., id. ¶¶ 342, 347, and promoted the idea that
purchases of XRP were investments into a common enterprise with a reasonable expectation of
profit based on Ripple’s efforts, see, e.g., id. ¶¶ 101, 118, 155, 166, 199, 210–12, 218–20, 253–
56, 260–62, 266, 278–79, 293, 306–11, 330, 334–38, 342–49, 421, 426. Additionally, the SEC
further claims that Garlinghouse had reason to suspect that Ripple’s actions were violating
securities law. See, e.g., id. ¶¶ 405–21.
Accordingly, the Individual Defendants’ motions to dismiss the SEC’s cause of action for
aiding and abetting Ripple’s violations of Section 5 are DENIED.
B. Individual Sales
The Individual Defendants argue that the SEC’s Section 5 claims based on their
individual sale of XRP should be dismissed because the SEC fails to sufficiently allege that any
of their XRP offers and sales were domestic, and, therefore, fails to allege that they violated
Section 5. See Larsen Mem. at 22–27; Garlinghouse Mem. at 21–29. The Individual Defendants
also contend that, even if the SEC has sufficiently alleged that their XRP offers and sales were
domestic, the Court should still find that Section 5 does not apply because those offers and sales
were predominately foreign. See Larsen Mem. at 27–28; Garlinghouse Mem. at 29–30.
1. Domesticity
It is a “longstanding principle of American law that legislation of Congress, unless a
contrary intent appears, is meant to apply only within the territorial jurisdiction of the United
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States.” Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 255 (2010) (quotation marks
omitted). All parties agree that Section 5 applies only to domestic offers and sales of securities.
See Larsen Mem. at 22; Garlinghouse Mem. at 20; SEC Mem. at 37, ECF No. 182. But, they
disagree over what test this Court should apply to determine whether the Individual Defendants’
offers and sales were domestic, and whether the SEC’s allegations satisfy any formulation of that
test.
The Individual Defendants argue that the transactional domesticity test set out in
Morrison governs the Court’s analysis of whether their offers and sales fall under Section 5. See,
e.g., Larsen Mem. at 3; Garlinghouse Mem. at 20. In Morrison, the Supreme Court found that
Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)” of the “Exchange Act”),
15 U.S.C. § 78j, does not apply extraterritorially. See Morrison, 561 U.S. at 265. The Supreme
Court reached this conclusion after rejecting the Second Circuit’s “conduct and effects test” for
determining whether activity fell within the territorial scope of Section 10(b). See id. at 256–
57. 15
After determining that Section 10(b) applies to only domestic conduct, the Supreme
Court turned to the question of when activity is considered “domestic” for the purposes of
Section 10(b)’s application. See Morrison, 561 U.S. at 266–69. Because Section 10(b) prohibits
a person from using a “manipulative or deceptive device” in connection “with the purchase or
sale of any security registered on a national securities exchange or any security not so
registered,” 15 U.S.C. § 78j(b), the Supreme Court was faced with two ways of assessing

The Supreme Court found that the conducts and effects test was difficult to administer and turned the
“presumption against extraterritoriality” into a “craven watchdog” because the test allowed Section 10(b) to apply
“whenever some domestic activity is involved in the case.” Morrison, 561 U.S. at 266 (emphasis in original). The
Supreme Court also expressed concern about treading on the jurisdiction of foreign countries who “regulate their
domestic securities exchanges and securities transactions occurring within their territorial jurisdiction” in ways that
“often differ[] from ours.” Id. at 269.
15

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domesticity—it could decide the location of activity based on (1) the place where the deception
originated, or (2) the place where the purchases and sales occurred, see Morrison, 561 U.S. at
266.
The Supreme Court approached this question by first determining the “focus” of the
Exchange Act. Analogizing to the Securities Act, 16 the Supreme Court concluded that the
“focus” of the Exchange Act was “upon purchases and sales of securities in the United States.”
Id. It discussed the portion of Section 5 that prohibits selling a security without a registration
statement, 15 U.S.C. § 77e(a), and explained that the SEC has interpreted this requirement “not
to include . . . sales that occur outside the United States.” Morrison, 561 U.S. at 268–69 (quoting
Regulation S, 17 C.F.R. § 230.901). Therefore, the Supreme Court determined that the
Securities Act has “the same focus on domestic transactions” as the Exchange Act. Id. at 268–
69. Because the Supreme Court concluded that the “focus” of the Exchange Act was on the sale
of the securities, it adopted a transactional domesticity test that looked to whether the “purchase
or sale [wa]s made in the United States, or involve[d] a security listed on a domestic exchange.”
Id. at 269–70.
Although Morrison itself did not clearly state when purchases or sales are “made” in the
United States under the transactional domesticity test, the Second Circuit has since articulated a
series of standards for determining where those purchases and sales occur. See generally
Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012). The Second
Circuit determined the meaning of domestic purchases and sales by considering how “purchase”
and “sale” are defined in the Exchange Act to include “any contract” to purchase or sell a

The Exchange Act and the Securities Act were enacted by the same Congress and form two parts of the same
“comprehensive regulation of securities trading.” Morrison, 561 U.S. at 268.

16

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security, and it concluded that purchases and sales occur “when the parties become bound to
effectuate the transactions.” Id. 67.
Therefore, the Second Circuit held that parties may show that a transaction occurred
domestically by alleging specific facts that suggest that irrevocable liability attached or title was
transferred in the United States. Id. at 68–70 (rejecting allegations merely stating that
“transaction took place in the United States” (quotation marks omitted)). It explained that these
facts may include those “concerning the formation of the contracts, the placement of purchase
orders, the passing of title, or the exchange of money.” Id. at 70; see also Banco Safra S.A.Cayman Islands Branch v. Samarco Mineracao S.A., 849 F. App’x 289, 293 n.2 (2d Cir. 2021)
(noting “that a transaction is . . . domestic when the two sides of the transaction are matched—
thus forming a binding contract—on an electronic exchange system within the United States”
(internal quotation marks omitted)). The Second Circuit further rejected as insufficient
allegations regarding a purchaser’s citizenship or residency, as well as allegations that securities
were heavily marketed in the United States or that U.S. investors were harmed by the
defendant’s actions. Absolute Activist, 677 F.3d at 69–70.
Here, the SEC takes the position that Morrison does not determine the territorial scope of
Section 5’s registration requirement, arguing that an SEC regulation, Regulation S, determines
what constitutes domestic offers and sales under Section 5. See SEC Mem. at 37–38, 44–45
(discussing 17 C.F.R. § 230.903). The Court disagrees.
The SEC correctly notes that Morrison quoted a provision of Regulation S, 17 C.F.R.
§ 230.901, when it explained how the SEC has understood Section 5 to apply only to sales that
occurred in the United States. See Morrison, 561 U.S. at 268–69. But, the SEC contends that
another provision of Regulation S, 17 C.F.R. § 230.903, which was not discussed or cited in
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Morrison, governs this Court’s assessment of Section 5’s territorial scope. See SEC Mem. at 37–
38, 44–45. This provision of Regulation S sets out a series of conditions that, if satisfied, will
cause the SEC to view offers and sales as occurring outside the United States. See 17 C.F.R.
§ 230.903. Although the SEC argues that Morrison’s citation to § 230.901 signals the Supreme
Court’s approval of using § 230.903 to determine when Section 5 may apply, SEC Mem. at 38,
Morrison’s reliance on § 230.901 for the general proposition that Section 5 does not apply
extraterritorially does not signal an intent to establish § 230.903 as the test for determining
whether offers and sales should be considered domestic. Indeed, as the Second Circuit has
explained, § 230.903 merely provides “safe harbors,” and “[a] transaction not within either of the
safe harbors may still be outside of the United States within the meaning of 17 C.F.R.
§ 230.901.” Eur. & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d
118, 125 (2d Cir. 1998), abrogated on other grounds by Morrison, 561 U.S. 247.
Having determined that Regulation S does not govern the Court’s analysis of whether the
Individual Defendants’ offers and sales occurred domestically for the purposes of Section 5, the
Court must decide what test should be applied. To the extent the Court is determining whether
sales occurred domestically, the Court finds that the transactional domesticity test set out in
Morrison, and clarified by Absolute Activist, governs this analysis. See Morrison, 561 U.S. at
269–70; Absolute Activist, 677 F.3d at 69–70. The Supreme Court clearly stated that the
provision of Section 5 that deals with unregistered sales of securities is focused on sales that
occur in the United States. See Morrison, 561 U.S. at 268–69 (discussing 15 U.S.C. § 77e(a)(1)).
Moreover, the definition of “sales” provided in the Exchange Act and the Securities Act are
“virtually identical.” SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147, 164 & n.21 (S.D.N.Y.
2011) (discussing 15 U.S.C. § 77b(a)(3) and 15 U.S.C. § 78c(a)(14)). The SEC has provided no
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convincing reason why the transactional domesticity test for sales under Section 10(b) should not
apply to sales under Section 5.
However, the Court is not persuaded that the transactional domesticity test should govern
whether offers occurred in the United States. Indeed, when discussing Section 5, the Supreme
Court quoted language from Section 5 and Regulation S that only dealt with “sales” of securities.
Morrison, 561 U.S. at 268–69 (discussing 15 U.S.C. § 77e(a) and 17 C.F.R. § 230.901). As the
Second Circuit explained, Morrison requires that courts assess “the particular statutory
provision” at issue when determining if violations are domestic. See Myun-Uk Choi v. Tower
Rsch. Cap. LLC, 890 F.3d 60, 67 (2d Cir. 2018) (quoting Loginovskaya v. Batratchenko, 764
F.3d 266, 271 (2d Cir. 2014)); see also RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 336
(2016). And, unlike Section 10(b), Section 5 applies to offers as well as sales. See 15 U.S.C.
§ 77e(c). Thus, the Court must decide what test should be applied to determine whether offers
occurred in the United States. Cf. SEC v. Blockvest, LLC, No. 18 Civ. 2287, 2019 WL 625163,
at *9 (S.D. Cal. Feb. 14, 2019) (recognizing that an offer does not require that performance be
possible or that the issuer legally bind a purchaser).
The SEC argues, relying on United States v. Naftalin, that, because the definition of
“offer” is construed broadly in other contexts, this Court should evaluate the “entire selling
process” to determine if the SEC has properly alleged that offers occurred in the United States.
See SEC Mem. at 41 (quoting United States v. Naftalin, 441 U.S. 768, 773 (1979)). But,
“[n]owhere in Naftalin does the Supreme Court state that the location of a transaction can be
determined by looking at ‘the entire selling process.’” Goldman Sachs, 790 F. Supp. 2d at 158
(quoting Naftalin, 441 U.S. at 773). Indeed, this Court finds that a test that expansive would risk
a reimposition of the conducts and effects test rejected in Morrison, see id., because such a test
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would result in similar “complexity, vagueness, inconsistency and unpredictability,” Cornwell v.
Credit Suisse Grp., 729 F. Supp. 2d 620, 624 (S.D.N.Y. 2010). Moreover, the Court should not
adopt a test for Section 5, a registration provision, that would have a much broader territorial
reach than the test set out for Section 10(b), an anti-fraud provision. As the Second Circuit has
explained, “it is well-settled in this Circuit that the anti-fraud provisions of American securities
laws have broader extraterritorial reach than American filing requirements.” Eur. & Overseas
Commodity Traders, 147 F.3d at 125–26 (citation omitted). The Court, therefore, concludes that
the term “offer” should not be given its most expansive meaning.
When assessing a similar provision of the Securities Act that focuses on both offers and
sales, a court in this district also found that the transactional test in Morrison governed the
domesticity of sales but not the domesticity of offers. See Goldman Sachs, 790 F. Supp. 2d at
164 (discussing the application of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a)). The
court in Goldman Sachs looked at the definition of “offer” in the Securities Act, and determined
that, for an “offer” to be domestic, “a person or entity must (1) ‘attempt or offer[,]’ in the United
States, ‘to dispose of’ securities or security-based swaps or (2) ‘solicit[,]’ in the United States,
‘an offer to buy’ securities or security-based swaps.” Id. at 165 (quoting 15 U.S.C. §§ 77q(a),
77b(a)(3) (alterations in original)); see also Absolute Activist, 677 F.3d at 67 (explaining that
courts must determine the meaning of a domestic purchase or sale by “consider[ing] how these
terms are defined”). The Court agrees that this test should be used to determine whether offers
are made in the United States for the purposes of Section 5.
Turning to the SEC’s allegations, the Court finds that the SEC has sufficiently alleged
that the Individual Defendants sold XRP in the United States. In examining these sales, the
Court applies the test set out in Absolute Activist to determine whether the SEC has alleged that
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irrevocable liability attached or title was transferred in the United States. The SEC claims that
the Individual Defendants’ sales occurred on multiple digital asset trading platforms, including
Platforms A and B, which are incorporated in the United States. See Amend. Compl. ¶¶ 177,
186. Although the Individual Defendants are correct that the place of incorporation does not
necessarily dictate where sales occur, see, e.g., Garlinghouse Mem. at 25 (citing Loginovskaya,
764 F.3d at 274–75), the amended complaint alleges more than those platforms’ place of
incorporation. The SEC also states that Platform A’s principal place of business is in California,
Amend. Compl. ¶ 157, and that Platforms A and B are based in the United States, see id. ¶¶ 162,
416. And, the SEC alleges that digital assets, like XRP, are traded on digital asset trading
platforms where they are, “at times[,] . . . allocated to investors’ accounts in the records of the
platform.” Id. ¶ 35; see also id. ¶ 154. Taken together, these allegations plausibly allege that the
Individual Defendants’ sale of XRP on Platforms A and B occurred in the United States.
Moreover, the SEC also states that the Individual Defendants executed offers and sales on
a digital asset trading platform through accounts based in the United States. See id. ¶¶ 177, 186.
Based on the allegations above, the Court may infer that their sales on that platform occurred in
the United States because irrevocable liability may attach when digital assets enter and leave
those accounts. See Myun-Uk Choi, 890 F.3d at 67.
Furthermore, the SEC has also alleged that the Individual Defendants made offers from
the United States. When assessing offers, as opposed to sales, the focus “is on the person or
entity [offering] securities.” Goldman Sachs, 790 F. Supp. 2d at 165 (quotation marks omitted).
Therefore, it is the location of the offerors—here Larsen and Garlinghouse—that is relevant.
The SEC alleges that the Individual Defendants resided in California during the time period in
question, Amend. Compl. ¶¶ 17–18, and “directed [their] offers and sales of XRP from within
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the United States,” id. ¶¶ 176, 185, by making offers on digital asset trading platforms directly,
id. ¶¶ 177, 183, 186, and by making offers through the “Market Maker,” a global digital asset
trading firm with an office in the United States, id. ¶ 96; see also id. ¶¶ 174, 183. These
allegations plausibly demonstrate that the Individual Defendants made their offers of XRP from
the United States because they show either direct solicitation via placement of XRP onto the
digital asset trading platforms, see Goldman Sachs, 790 F. Supp. 2d at 165, or an attempt to
dispose of XRP via a broker, which is considered an offer under even a narrow interpretation of
the term, see Naftalin, 441 U.S. at 773 (“At the very least, an order to a broker to sell securities is
certainly an ‘attempt to dispose’ of them.” (discussing 15 U.S.C. § 77b(3))).
Accordingly, the Court finds that the SEC has plausibly shown that the Individual
Defendants made domestic offers and sales of XRP.
2. Predominately Foreign
The Individual Defendants argue that this Court should find that their offers and sales are
“predominately foreign” even if they are considered domestic. See Larsen Mem. at 27–28;
Garlinghouse Mem. at 29–30; see also Parkcentral Glob. Hub Ltd. v. Porsche Auto. Holdings
SE, 763 F.3d 198, 215–16 (2d Cir. 2014); Cavello Bay Reins. Ltd. v. Shubin Stein, 986 F.3d 161,
166 (2d Cir. 2021). The Court disagrees.
The Second Circuit has held that the presence of a “domestic” securities transaction is a
necessary but not sufficient predicate for invocation of U.S. securities law. See Parkcentral, 763
F.3d at 215. And, when transactions involve “wholly foreign activity clearly subject to
regulation by foreign authorities,” the Second Circuit has found securities law violations to be
predominately foreign, and, therefore, outside of the territorial scope of U.S. securities law. Id.
In the two cases where the Second Circuit determined that violations were predominately
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foreign, the “conduct [ ] occurred in a foreign country, [and] concern[ed] securities in a foreign
company, [that were] traded entirely on foreign exchanges.” Id. at 215–16; see also Cavello, 986
F.3d at 166–67 (explaining that “the security at issue [in Parkcentral] was wholly foreign” and
the case before it involved a “private agreement for a private offering between a Bermudan
investor . . . and a Bermudan issuer”). But, the Second Circuit was careful to point out that it did
“not suggest that the presence of some foreign element in a transaction necessarily means that
Congress did not intend to include it in the coverage of §10(b).” Parkcentral, 763 F.3d at 216.
Rather, the key question is whether “[p]roviding a domestic forum [would] enhance confidence
in U.S. securities markets or protect U.S. investors.” Cavello, 986 F.3d at 167.
Here, the Court finds that the Individual Defendants’ offers and sales were not
predominately foreign. These offers and sales were made by U.S. residents, see Amend. Compl.
¶¶ 17–18, involved alleged securities issued by a U.S. company, see id. ¶ 16, concerned at least
some offers and sales made on U.S.-based platforms, see id. ¶¶ 177, 186, and included at least
some offers and sales made to U.S. purchasers, see id. ¶¶ 174, 178, 184. Thus, the application of
Section 5 to these offers and sales would “enhance confidence in U.S. securities markets [and]
protect U.S. investors.” Cavello, 986 F.3d at 167.
Accordingly, the Individual Defendants’ motions to dismiss the SEC’s claims based on
their individual offers and sales are DENIED.
C. Timeliness
The SEC and Larsen entered into a tolling agreement on September 1, 2020. See Amend.
Compl. ¶ 429. Therefore, the SEC may seek monetary penalties for any causes of action that
accrued after September 1, 2015. See 28 U.S.C. § 2462 (imposing five-year statute of
limitations). In the amended complaint, the SEC alleges that Ripple engaged in the unlawful
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offer and sale of unregistered securities from 2013 through the present, and that Larsen aided and
abetted those offers and sales during that same time period. See Amend. Compl. ¶¶ 437–38. The
SEC also alleges that Larsen made his own unregistered offers and sales of XRP from 2013
through, at least, 2020. See id. ¶ 433. Larsen argues that the SEC’s claims for monetary civil
penalties should be considered time-barred under 28 U.S.C. § 2462 because the amended
complaint suggests that Larsen was involved in a “years-long unregistered offering of securities”
that began in 2013, see, e.g., id. ¶ 5, and that the SEC’s cause of action, therefore, accrued
outside the five-year limitations period, see 28 U.S.C. § 2462. See Larsen Mem. at 28–30. The
Court disagrees.
Larsen cites no cases in which a court has applied his interpretation of 28 U.S.C. § 2462
to claims under Section 5, or any other provision of securities law. 17 Indeed, numerous cases
conflict with Larsen’s interpretation of that provision. In SEC v. Cavanagh, the Second Circuit
stated that Section 5’s registration requirement is “transaction-specific.” 155 F.3d 129, 133 (2d
Cir. 1998). 18 Therefore, it follows that each unregistered transaction constitutes a separate
violation of the statute that starts the running of the statute of limitations anew. See Grondahl v.
Merritt & Harris, Inc., 964 F.2d 1290, 1294 (2d Cir. 1992) (“The statute of limitations in federal
securities law cases starts to run on the date that the parties have committed themselves to
complete the purchase or sale transaction.” (emphasis omitted)); SEC v. Sason, 433 F. Supp. 3d

Larsen argues that SEC v. Jones supports his position but, in that case, the district court found that the statute of
limitations barred the SEC’s claims because there were no “allegation[s] that [the defendant] sold or offered to sell
unregistered securities during the limitations period.” 300 F. Supp. 3d 312, 314 (D. Mass. 2018); see also Larsen
Mem. at 29. This does not support Larsen’s argument because the amended complaint alleges that Ripple and
Larsen made offers and sales throughout the limitations period. See, e.g., Amend. Compl. ¶¶ 433, 437–38.
18
To the extent Larsen relies on the SEC referring to Ripple’s sales as “the Offering” in support of its position that
all of Ripple’s offers and sales were considered one violation of the Section 5, the Court is not persuaded. See
Larsen Mem. at 29–30. The fact that the SEC labeled Ripple’s transactions “the Offering” in describing the factual
underpinning of its claims does not dictate how those transactions are viewed for the purpose of determining how
the statute of limitations applies to those transactions.
17

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496, 507–08 (S.D.N.Y. 2020). Because the SEC’s claims could not accrue for each offer and
sale until Defendants actually offered or sold the XRP, see Sason, 433 F. Supp. 3d at 507, the
Court does not find that they accrued when Defendants began to make unregistered offers and
sales of XRP generally, see SEC v. e-Smart Techs., Inc., 31 F. Supp. 3d 69, 88 (D.D.C. 2014); cf.
Gabelli v. SEC, 568 U.S. 442, 448 (2013) (“[T]he standard rule is that a claim accrues when the
plaintiff has a complete and present cause of action.”).
Accordingly, Larsen’s motion to dismiss the SEC’s claims for monetary civil penalties is
DENIED.
CONCLUSION
For the foregoing reasons, the Individual Defendants’ motions are DENIED. The Clerk
of Court is directed to terminate the motions at ECF Nos. 105 and 110.
SO ORDERED.
Dated: March 11, 2022
New York, New York

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