- Yesterday’s discovery hearing in SEC v. Ripple produced two “surprise bombshells” in Ripple’s favor, as analyzed by Jeremy Hogan.
- Judge Sarah Netburn believes XRP has value as a currency and utility.
One of the XRP community’s two favorite lawyers, Jeremy Hogan, listened in on yesterday’s discovery hearing in the SEC v. Ripple case and once again made a YouTube video about it. As Hogan explained, there were two big surprises at once (disclaimer: without giving any legal or financial advice). “So on a scale from 1 to 10, this hearing was an 11 for Ripple”.
By way of introduction, Hogan laid out that there are currently four open motions in the case. These are, on the one hand, the SEC’s motion to inspect Brad Garlinghouse’s and Chris Larsen’s financial records; the SEC’s motion to strike Ripple’s “fair notice” defense; Garlinghouse’s and Larsen’s motion to dismiss the individual lawsuits; and Ripple’s motion for disclosure of documents as to why it took the SEC 7 years to sue Ripple.
During yesterday’s hearing, however, the focus was solely on the first request, the financial records of the two Ripple chiefs. The SEC is asking for very detailed information about bank accounts, checking accounts, and any financial dealings. Garlinghouse and Larsen have already disclosed to the SEC their trading financial documents, which show when and how Ripple chiefs sold their XRP.
However, the SEC is not satisfied with this. And according to Hogan, there is only one reason for this: “The SEC is trying to get these detailed records in order to make rich guys look bad. […] They want to make them look filthy rich and leave a bad taste in the judge’s mouth.” According to Hogan, however, Judge Sarah Netburn recognized this by asking:
Do you have some evidence that the trading financial records are incomplete or somehow fraudulent?
According to Hogan, the SEC didn’t have a “good answer” ready, which is why he believes the SEC “for the most part” won’t get what it wants.
The two “bombshells” in favor of Ripple
First there was Judge Netburn’s bombshell when she interrupted Garlinghouse’s attorney Matthew Solomon to say, “My understanding of XRP is that not only does it have a currency value, but it also has a utility and that utility distinguishes it, I think, from Bitcoin and Ether. Is that correct?”. As Hogan states, this is an extremely positive signal for Ripple:
Now the comment itself shows that the judge has done some research […] even the logic is faulty, the statement is premised on two humongous things. One that XRP has a currency value and two that XRP has utility. First no matter what the SEC might be trying to argue, a currency and a security are by definition an opposite.
So Judge Netburn buys Ripple’s argument that it has utility, “at least at this point in time.” This is exactly what Ripple wants the court to believe, as Hogan says:
When she first was hawking about it and said currency and utility, I thought she was Chris Larsen’s attorney […] Boom. Wow!
Even though Analisa Torres is the main judge of the trial, Netburn will play an important role in the proceedings. Hogan elaborated, “You better believe that judge Torres is very likely saying the same thing or at least knows that Netburn is feeling that way.”
Netburn will make a recommendation regarding Summary Judgment and is also responsible for mediation, making her involved in the “two most important junctions of this case. If I am Ripple, I would feel pretty good” Hogan said.
The second bombshell was less flashy, but no less significant. Thus, an attorney for the SEC stated that under U.S. securities laws, “only Ripple and affiliates of Ripple can have sold XRP illegally”. Hogan analyzed:
Why is that super important? That means that the exchanges that delisted XRP 2 months ago were not and would not be violating securities laws if they re-listed XRP for sale and begin to sell it again. I think re recently saw one exchange that re-listed XRP. So I wonder if there is perhaps a slew of non-action letter request coming or already received by the SEC, and if so, I wonder if we see XRP for sale in the US again.
Judge Grants SEC’s Request To Extend Discovery Phase of Lawsuit With Ripple by Two Months
A federal judge has granted the U.S. Securities and Exchange Commission’s (SEC) request to extend the discovery phase of its lawsuit against Ripple by an additional two months, according to new case documents.
Judge Sarah Netburn says in a new order that the additional time requested by the SEC will not impact “the schedule to resolve the case.”
“Rather, the additional time sought by the SEC will allow both sides to complete the outstanding fact discovery and properly prepare for expert depositions.”
The discovery phase is a pre-trial stage of a lawsuit where both parties present relevant information and evidence.
The SEC asked to extend the deadline for expert discovery from November 12th to January 14th, citing the need for “sufficient time to prepare rebuttal reports and depose a minimum of 14 expert witnesses.” The regulator argued such an extension wouldn’t extend the case’s timeline.
Ripple opposed the January 14th extension, arguing that expert discovery should only be extended to December 10th, saying the two-month extension “would needlessly prolong discovery.”
Attorney and crypto legal expert Jeremy Hogan, who is a Ripple supporter, disagrees with Judge Netburn about the extension’s impact on the lawsuit’s timeline.
Says Hogan on Twitter,
“Well, that is ‘no bueno.’
Judge argues that the additional time will not affect the schedule to resolve the case, but I don’t see how that is possible; it HAS to affect the schedule for briefing summary judgment.
Case summary judgment resolution now not until March-May 2022.”
XRP Lawsuit: Ripple appeals the Court to Disclose SEC’s in-camera review documents
The latest update in the XRP lawsuit saw Ripple respond to SEC’s letter with the explanation for its privilege assertions along with a redacted version of the three additional documents requested by the defendants for in-camera review. Ripple has requested the court to disclose these documents to the defense and has further continued to argue against the plaintiff’s repetitive “privileged” stance.
Ripple objects to SEC’s entitlement to keeping secrets under DPP
Ripple has contended SEC’s “pre-decisional” or “deliberative” argument for the three additional documents, noting that the commission has failed yet again to identify any specific policy process related to these or other documents, as it is required to when seeking protection under DPP. Ripple argued that the SEC claims against disclosure of discussions are weak and do not stand any legal relevance.
SEC asserts that “how to structure a forum the SEC intends to use to communicate with industry participants” is deliberative or would reveal its “mode of formulating or exercising policy-implicating judgment,”. However, the defense objects to the plaintiff’s assertions’ insufficiency to invoke DPP and states that if this argument is considered valid in the court, then that would extend the invalid privilege to virtually every document or communication in a federal agency.
“The fundamental problem with the SEC’s approach is that the agency apparently believes that it is entitled to operate in secret, and to withhold from actual litigants, whose reputations and livelihoods are at stake due to its own affirmative litigation choices (as opposed to the general public pursuant to FOIA), any internal documents that relate to its mission, broadly defined. This approach finds no basis in law because it turns on its head Congress’ lawfully enacted presumption of openness in government documents, subject to circumscribed, narrow exceptions.”
While the Court granted Ripple’s September 24 appeal, seeking the addition of three documents by the SEC for in-camera review, it still has not permitted disclosure of mentioned data to the defendants. These documents include the two documents related to the SEC’s meetings with law firms, along the email trail concerning discussions with a third party who received guidance from the SEC to analyze its digital asset under the framework set forth in Hinman’s June 14, 2018, speech.
SEC v. Ripple – Court orders plaintiff to ‘answer Ripple’s interrogatories’
Within 24 hours of the court approving the Securities and Exchange Commission’s request to postpone the discovery deadline to January 2022, Judge Sarah Netburn has responded to two pending motions in the SEC v. Ripple Labs lawsuit.
One of the motions was from defendants Ripple Labs and Chris Larsen to compel the SEC to supplement its responses to eleven of its interrogatories and two of Larsen’s. Meanwhile, the other motion from the SEC sought a protective order to relieve it of the obligation to respond to 29,947 separate requests for admission, as per the filing.
Judge Netburn has now granted and denied both motions in part.
The judge ordered the SEC to answer Ripple’s interrogatories and identify the specific terms of the “investment contract” from XRP sales. The order added,
“Ripple’s interrogatory is relevant (and precise) and will clarify whether the SEC contends that the terms of any contract identified in response to Ripple’s Interrogatory No. 1 created an expectation of profits by the purchaser of XRP.”
“Accordingly, Defendants’ motion regarding Ripple Interrogatory No. 2 is GRANTED, and the SEC must supplement its response to Interrogatory No. 2 to identify any specific contractual terms and not just implicit and explicit promises as previously identified.”
The SEC must also respond to whether it contends that “efforts by Ripple were necessary to effect any increase in the price of XRP.” The court granted most of the defendants’ motions to compel answers on interrogatories, except one.
This was the motion from Chris Larsen on when XRPL is fully functional. Judge Netburn denied it without prejudice for being “too vague,” with the parties ordered to confer clarity terms.
Meanwhile, the SEC’s motion for protective orders was also partially granted and denied. The judge granted protection on Defendants’ 28,849 RFAs, noting that “it is hard to view this stunt as anything more than theater.” The order added,
“The motion for a protective order is GRANTED on burden grounds. Having granted the motion to compel a response to Ripple’s Interrogatory No. 2, the protective order is also GRANTED as cumulative and duplicative of another form of admissible evidence.”
As the SEC and Ripple filed their responses, the timeline for the case may extend due to the postponement of the discovery deadline. This deadline was pushed so that the parties could complete the expert depositions and beef up their preparations.