The U.S. Securities and Exchange Commission (SEC) faced another courtroom defeat in a case it initiated in 2021. The agency had accused Aron Govil of defrauding investors in two companies he controlled, Cemtrex and Telidyne, and had filed a lawsuit against Govil. The allegations included false statements that Telidyne was developing mobile applications to facilitate cryptocurrency transactions and aid in the fight against COVID-19. The SEC had sought not only monetary penalties but also additional compensation through the court. The U.S. Court of Appeals for the Second Circuit, in a decision announced yesterday, ruled that the SEC cannot seek compensation from the defendant without proving that investors have incurred financial losses.
The Losing Streak Continues
Ripple’s Chief Legal Officer, Stuart Alderoty, drew attention to this latest defeat in another case by the SEC. Alderoty commented, “Another loss for the SEC this week… The losing streak continues. In the SEC v. Govil case, the 2nd Circuit ruled that the SEC cannot seek compensation without demonstrating that ‘investors’ have suffered financial losses. In other words, no harm, no foul.”
Could the SEC Suffer Another Loss in the Ripple Case?
Some legal experts believe that following the ruling in the Govil case, the SEC may face another defeat in the resolution phase of its lawsuit against Ripple. It is well-known that in the SEC’s case against Ripple, the court ruled that XRP is not an investment contract on its own. However, it deemed institutional XRP sales to be an exception and counted them as investment contracts.
According to experts, the SEC will now demand compensation from Ripple, but it will need to prove that institutional XRP investors suffered financial losses. Ripple had sold $770 million worth of XRP to institutional investors. Some legal experts believe that in the resolution phase of the case, the SEC will try to make Ripple pay a substantial portion of the $770 million sale as a penalty.
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