- On Friday’s hearing, Ripple revealed that it had already given the SEC access to two memos by its lawyers from 2012 and 2015.
- According to one attorney, Ripple looks set to win the battle on whether there was fair notice by the SEC regarding XRP’s status and this could collapse the regulator’s case.
The last time the U.S Securities and Exchange Commission faced off with Ripple in court, it walked out victorious. As CNF reported, the presiding judge ruled that the regulator can keep on using “intimidation tactics” in its pursuit of evidence against the company. In yesterday’s hearing, however, the tide shifted slightly. According to one attorney, Ripple is likely to win the fight to prove that the SEC didn’t give fair notice that XRP was a security, which would effectively nullify the watchdog’s case.
On Friday, the SEC squared off with Ripple once again at the Southern District of New York. As has been the norm in recent hearings, XRP holders had the opportunity to dial in and listen in on the proceedings of the court. As attorney Jeremy Hogan revealed in his latest YouTube video, the maximum 4,000 slots for the holders were filled.
PARTY TIMEEEEEEEEE!! #XRPCommunity #SecvsRipple #ListeningParty Thank you @FilanLaw ♥ 🙌 Thank you @janet_yellin for the heads up ♥
USA (844) 291-4185
INT (409) 207-6997
Code 4934010 #
May 21, 2 PM EST
Spots fill up FAST. Log on EARLY! pic.twitter.com/hl1egN5DrC
— Aᶤda (@aiiiida) May 12, 2021
Friday’s hearing was on whether Ripple had lost its right to lawyer-client privilege regarding the memos they shared between them. The SEC wanted access to these memos to prove that Ripple had been informed that XRP could be a security.
However, as Jeremy reveals, Ripple has already given the SEC access to some of the memos.
We learned today from the SEC’s oral argument that Ripple has already given the SEC two lawyer letters from 2012 and 2015 and that the 2012 letter says, “Be careful, this XRP thing could be considered a security.”
The fight over ‘fair notice’
The ‘fair notice’ defense by RIpple is of critical importance, Jeremy points out.
The hearing today was super important as the fair notice defense puts the SEC on trial, so to speak. A fair notice defense looks at what the SEC did or didn’t do and what effect that had on companies that it has jurisdiction over.
This is why for the SEC, laying its hands on the Ripple memos could make or break the case. If it can prove that Ripple’s lawyers had informed the company XRP could be a security, it would play down the fact that it failed to provide any guidance to Ripple.
The SEC is still trying to throw out the fair notice defense according to the attorney. This would be a big blow to Ripple and would give the SEC a leg up in the case. However, Judge Sarah Netburn has continued to push the SEC to prove that the lack of clarity affected its operations, not just Ripple’s. This, Jeremy points out, shows that “she has kind of bought into what the defense is all about.”
Seal Nulliah, yet another attorney with a deep interest in the case, concurs. He believes that the Ripple legal team had the judge making their arguments for them.
I think the #Ripple lawyers were smart enough to recognize that when the Judge is making YOUR arguments for YOU, you don’t have to overcomplicate your submissions. It was a good day😉
— Seal Nulliah (@AttorneySeal1) May 21, 2021
Ripple’s lawyer James Filan revealed on Twitter that the next faceoff is on May 25. On this day, Ripple will submit its response to the SEC’s motion for a discovery conference concerning privileged materials. Two days later on May 27 will be the defining date, however. On this day, the SEC will submit its reply to Ripple’s opposition brief on the regulator’s motion to strike the “lack of due process and fair notice” defense.
Court Orders SEC to Answer Ripple’s Interrogatories
Ripple, however, has failed to bury the SEC in paperwork, with the judge granting the agency’s motion for a protection order against “unduly burdensome” requests
Magistrate Judge Sarah Netburn has ordered the U.S. Securities and Exchange Commission to answer some of Ripple’s hotly-contested interrogatories, which are meant to determine whether or not the plaintiff’s contentions can be supported by facts.
The agency will have to specify why the company’s XRP sales are investment contracts:
The SEC’s legal theory is not an excuse to avoid responding to Defendants’ factual inquiry. Nor is it a basis to answer a different question than posed.
In addition, the SEC will have to state whether it believes that Ripple’s efforts were key to boosting the price of XRP.
However, Ripple’s interrogatory about whether or not the XRP Ledger was fully functional prior to the start of the securities offering has been denied for being too vague:
The Court agrees that this interrogatory seeks relevant information. But Defendants’ interrogatory is too vague for the reasons identified by the SEC.
Netburn has also granted the SEC’s motion for a protective order, which allows the regulator not to respond to all of Ripple’s “unreasonably burdensome” interrogatories.
The agency claimed that covering all the 29,947 requests would take 104 days without “breaks or sleep.”
Earlier this week, the court also granted the SEC’s motion to extend the expert discovery deadline to Jan. 14, 2022, despite Ripple’s protestations.
Ripple CEO Says the SEC Helped Ethereum to Surpass XRP as No.2 Crypto
- Ripple CEO aired his opinion on the crypto market and regulations.
- Brad Garlinghouse said the US SEC granted Ethereum regulatory green light.
At the DC Fintech Week virtual conference on October 21, Ripple CEO Brad Garlinghounse aired his thoughts on the state of the crypto market and regulations. Besides, he holds a grudge over the financial regulator’s approach to Ethereum.
In addition, Garlinghouse declared that the US Security and Exchange Commission (SEC) granted Ethereum regulatory green light that enabled it to surpass his firm’s XRP token.
Likewise, the Ripple boss feels that his firm has been played out. But, at the same time, Ethereum’s subsequent success is at least in part down to more favorable treatment by the US SEC. Also, Garlinghouse stated that it is affecting its market. He said,
“Within the last few years, XRP was the second most valuable digital asset. As it became clear the SEC had given a hall pass to ETH, ETH obviously has exploded, and that clarity has helped.”
To clarify, XRP was the second-largest crypto asset by market cap in late December 2017. But, currently, it has dropped to seventh place while Ethereum has kept the second spot ever since.
Furthermore, the reason why XRP dropped is the US SEC pursuing Ripple over claims that XRP is unregistered security. In fact, in January, Ripple filed a Freedom of Information Act request with the US SEC demanding to know why it didn’t consider ETH security.
As a result, later in July, a district judge allowed the firm to depose a former official who declared in 2018 that ETH was not a security.
XRP Lawsuit: Court Grants Two Motions for both parties each. Here’s how it’s a win-win for Ripple?
The latest update in the XRP lawsuit explains the need for the formerly granted extension. Judge Netburn partially granted two motions, one for both parties. First, the Defendants’ Motion to Compel the SEC to produce interrogatories responses, regarding SEC’s Howey Test blanket application theory. Second, the Plaintiff’s Motion seeking a protective order under FRCP 26(c)(1), relieving the plaintiff of any obligation to respond to the 29,947 requests for admission (RFAs). Judge Netburn explains that the discovery sought in both motions overlap in certain respects, and therefore these applications are resolved together.
Court grants majority motions from the Interrogatories Dispute
Judge Netburn specified that the parties’ conflict over the application of Howey and its progeny do not render Ripple’s interrogatory improper and therefore has ordered the SEC to answer Ripple’s interrogatory No.2, identifying the specific terms of the “investment contract” from XRP sales, along with Interrogatories 11, i.e., Ripple’s move to compel the SEC to state whether it contends that “efforts by Ripple were necessary to effect any increase in the price of XRP.”
Followed by Interrogatories 1 & 11, the Court also granted Ripple Interrogatory No. 6, i.e., the defendants move to compel the SEC to state whether it contends that “Bitcoin and/or Ether are securities within the meaning of Section 2 of the 1933 Securities Exchange Act.”. Furthermore, Judge Netburn granted most of the Defendants’ motions to compel answers on other interrogatories, except Defendants’ motion regarding Larsen Interrogatory No. 5 on when XRPL was fully functional. The judge denied it without prejudice for being “too vague”.
SEC “irrelevance” argument discarded, while “burdensome” stance gets protection from Court
In the RFAs dispute, where the SEC sought a protective order, Judge Netburn has ordered the SEC to answer most of the RFAs while granting protection from one. Specifically, the Court has discarded SEC’s “irrelevance” argument in the case. The court Orders the SEC to produce responses for the Fourth Set requests, seeking to authenticate documents for admissibility under Rule 36(a)(1)(B) that regards the use of RFAs to establish the authenticity or genuineness of a document.
Furthermore, Judge Netburn denies SEC’s “irrelevant” contention to the Fourth Set of Requests regarding Defendants’ “fair notice” argument. The judge stated that disputes over interpretations of law are not a proper objection to a request for admission. Additionally, the court suggested the responding party either admit or deny the statement presented. The court orders the SEC to make a “reasonable inquiry” to secure such information “as are readily obtainable”, further denying the motion for a protective order to the Fourth Set of requests.
However, the court granted a protective order to the SEC for the Sixth Set of Requests regarding the disputed issue of whether Defendants’ sales of XRP constitute “investment contracts” under Howey, where the Defendants required the SEC to consider over 1,500 contracts and answer 13 preliminary questions. The Judge writes “it is hard to view this stunt as anything more than Theatre” to Defendants’ extensive 28,849 RFAs and granting protection to the plaintiff on burden grounds.