- Judge Netburn will likely have no choice but to force the SEC to release its documents on Bitcoin, Ethereum, as well as internal documents on XRP.
- The SEC issued a statement to an XRP holder as recently as October 2020 that a decision on whether to classify it as a security was open.
In the legal battle between the U.S. Securities and Exchange Commission, SEC and Ripple, both parties continue to provide an uninterrupted exchange of blows. In a letter sent yesterday to Magistrate Judge Sarah Netburn, Ripple’s lawyers write that the SEC’s refusal to release its documents on the classification of Bitcoin (BTC) and Ethereum (ETH) is based on a “mischaracterizing” of the facts and “a self-serving prediction of this case’s outcome”.
The Ripple lawyers give reasons why the documents on BTC and ETH, as well as the SEC’s internal documents on BTC, ETH and XRP, are relevant. According to the letter, Ripple attorneys are looking for evidence that the agency contributed to “widespread market confusion” regarding XRP:
Defendants instead seek documents that reflect, either directly or using internal communications as a proxy, how XRP was viewed in the marketplace. The SEC cannot deny that the agency is a focal point for requests for regulatory guidance as to whether XRP was a security.
Both attorney Jesse Hynes and attorney Jeremy Hogan celebrated the letter as a great one from Ripple. While Hynes wrote via Twitter, “This response is 🔥 🔥 in my personal, not legal, opinion”. Hogan stated that after this letter, the judge will have no choice but to grant Ripple’s motion and be supportive in disclosing the documents.
I would be shocked if the Judge does not make the SEC provide these documents.
Further, Hogan also analyzed that the lawsuit against Brad Garlinghouse and Chris Larsen brings knowledge of the wrongdoing into play and “that is turning into a big mistake for the SEC as it is what makes these documents relevant. How big a mistake will depend on what is in the documents.” Ripple’s lawyers may have already found a first “mistake” in the process. Hogan tweeted:
Another very interesting thing hidden in a footnote: The SEC told a retail XRP holder that emailed the SEC, that it had NOT made a determination as to whether XRP was a security in…wait for it….in OCTOBER 2020! They might have been drafting the lawsuit in October!
So the SEC could have been in disagreement about XRP’s status about 2 months before they filed the lawsuit against Ripple Labs, Garlinghouse and Larsen themselves. The argument of intent or recklessness in relation to the allegations against the two Ripple bosses would then probably be difficult for the SEC to sustain. The letter states:
Accordingly, if its internal documents disclose (as they undoubtedly will) that the SEC itself could not reach consensus about when a digital currency is a security and when it is not, it can hardly claim that market participants were in a superior position to know what the law requires.
Last but not least, Hogan also points out another important aspect that could put the judge on Ripple’s side.
Finally, the SEC is NOT helping itself when it tells the Judge half-truths. (See Section III) You can’t tell the Court you “produced” 97k documents when HALF of those documents were produced FROM Ripple to the SEC pre-litigation! That is a sure way to piss off the Judge!
A telephonic discovery conference has been scheduled for Tuesday, April 6, 2021 at 2:00 PM New York time to discuss Defendants’ joint motion to compel.
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.