ORDER Plaintiff, the United States Securities and Exchange Commission (the “SEC”), brings this action against Defendants Ripple Labs, Inc. (“Ripple”), and two of its senior leaders, Bradley Garlinghouse and Christian A. Larsen, alleging that Defendants engaged in the unlawful offer and sale of securities in violation of Section 5 of the Securities Act of 1933 (“Section 5″), 15 U.S.C. §§77e(a) and (c). Amend. Compl. 9, ECF No. 46. Ripple asserts, as an affirmative defense, that it lacked “fail” notice that its conduct was in violation of law, in contravention of Ripple’s due process rights.” Answer, Affirmative Defenses at 97-99, ECF No. 51. The SEC moves to strike Ripple’s fail notice defense under Federal Rule of Civil Procedure 12(f). SEC Mot., ECF No. 128. For the reasons stated below, the SEC’s motion is DENIED. BACKGROUND The following facts are taken from Ripple’s answer and are presumed to be true solely for the purpose of considering the motion to strike. See Tradeshift, Inc. v. Smucker Servs. Co., No. 20 Civ. 3661, 2021 WL 4463109, at *4 (S.D.N.Y. Sept. 29, 2021). Ripple was founded in 2012 as a “privately-held payments technology company that uses blockchain innovation…to allow money to be sent around the world instantly, reliably, and more cheaply than traditional avenues of money transmission.” Answer, Preliminary Statement 6 (footnote omitted). Ripple holds a large percentage of XRP, id. 11, “a fast, efficient and scalable digital asset” that “is transacted on the cryptographic XRP Ledger,” id. 7. XRP has a “fully functional ecosystem and [has] utility as a bridge currency” and other types of currency uses. Id. 13. XRP’s price is not and has not been determined by Ripple’s activities. Id. Rather, the market prices XRP in correlation with other virtual currencies, including bitcoin and ether. Id. Ripple has not filed a registration statement for XRP with the SEC. Answer, Response 1. In February and October 2012, at Ripple’s request, a law firm provided two legal memoranda assessing the potential legal risks involved with Ripple’s then-proposed business plans, including risks related to banking and money transmission laws, securities laws, commodities laws, gambling laws, consumer protection laws, copyright laws, criminal laws, and tax laws. See id. 51. Ripple has sold XRP in exchange for fiat or other currencies. Id. 1. To effectuate those sales, Ripple worked with third-party companies known as “market makers” that buy and sell XRP “on-ledger and on exchanges through blind bid/ask transactions.” Id. 93. At times, Ripple has included on its website a list of third-party digital asset exchanges that listed XRP. Id. 97. Ripple concedes that Ripple employees at times observed the trading price and volume of XRP. Id. 193. Ripple also admits that proceeds from Ripple’s sales of XRP were used to support Ripple’s operations, id. 294, but maintains that its sales of XRP consistently constituted a small portion of XRP trading volume, id. 99. In addition to selling XRP, Ripple has also made certain payments in XRP as a virtual currency substituting for fiat currency. Id.
