XRP holders – or at least six of them – will get their day in court in the long-running saga that has pitted senior Ripple executives against the regulatory US Securities and Exchange Commission (SEC). But the regulator is refusing to let up in its crackdown on crypto-related firms, and has served up Circle Financial, the issuer of the second-most popular stablecoin, USD coin (USDC), with a subpoena.
In the Ripple-SEC case, which revolves around the assertion that executives knowingly sold an unregistered security, XRP holders have been attempting to insert themselves into the legal struggle for some time. The regulator would rather duke it out with the Ripple executives alone. However, in an official ruling, Manhattan District Court Judge Analisa Torres wrote that the court should be allowed to hear the “meaningful perspective” of XRP holders.
Torres’ assertion came despite SEC claims in an official attempt to halt the intervention that the XRP token holders “cannot offer any unique perspective or information that is not already available to the court, either in the public record or through the presentation of the [executives’] counsel.”
The lawyer representing a group of XRP holders was in a celebratory mood on Twitter.
A few days ago @BlackberryXRP tweeted out:
“We were all on TV today” regarding my appearance on the countdown with @LizClaman and @CGasparino.
We were all granted amicus status today! https://t.co/j2mBXooB4p— John E Deaton (@JohnEDeaton1) October 4, 2021
Although Torres stated that the holders could not “intervene as a class,” as this would cause delay, she added [citing legal precedent] that “they will provide the court with a meaningful perspective, and will help ensure [the] ‘complete and plenary presentation of difficult issues so that the court may reach a proper decision.’”
She ruled that the holders “shall be allowed to assist the court by briefing legal issues relevant to the case as approved in advance by the court.”
However, although the judge wrote that amicus status would allow the XRP holders “to assist with ‘significant legal issues,’” she expressed the view that the court would be “acknowledging the [group]’s ‘highly partisan position.’”
At 07:48 UTC, XRP, ranked 7th by market capitalization, trades at USD 1.05 and is up by almost 2% in a day and 14% in a week.
Meanwhile, the SEC also appears undaunted in its pursuit of another major American crypto player, namely Circle.
In a filing to the SEC, Circle revealed that it had actually received an “investigative subpoena” from the regulator’s Enforcement Division back in July this year, asking it to provide “documents and information.”
The company wrote:
“In July 2021, we received an investigative subpoena from the SEC Enforcement Division requesting documents and information regarding certain of our holdings, customer programs and operations. We are cooperating fully with their investigation.”
Some media outlets have pointed out that Circle made a similar admission in a document back in August, although this section appears to have been overlooked by most at the time.
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.
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.