Ripple Labs scores a big win as Judge Torres orders the SEC to hand over documents from a 2018 speech made by then-SEC Director of the SEC’S Corporate Finance Division, William Hinman.
Update 4 Oct. 19:45UTC: Following the recent applications filed by both I-Remit and TapJets, which backed Ripple’s Motion for Summary Judgement, the Securities and Exchange Commission (SEC) has opposed both motions, citing that “the proposed briefs constitute improper attempts by Movants to offer evidence outside the constraints of discovery restrictions, the rules of evidence, and this Court’s prior order.”
Update 30 Sept. 18:30UTC: Global payment remittance company I-Remit has joined the fray by filing an application to file an amicus brief, supporting Ripple’s Motion for Summary Judgement. The document, which backs the use of XRP as “a tool for payment transfers,” adds that “This position badly misunderstands how XRP is actually used.” The document also adds that the SEC “seems to misconstrue important aspects of the large and growing international cryptocurrency industry, seeking to expand its regulatory authority over markets that have no relationship to its traditional scope of authority.”
This ruling comes after a lengthy battle that could decide the fate of many cryptocurrencies.
Following an earlier court ruling by Judge Sarah Netburn that emails and drafts related to a 2018 speech by the former Director were not protected under due process privilege, the SEC requested clarification and reconsideration of the ruling.
Due Process Privilege is a term broadly used to describe confidential discussions leading to the announcement of changes in government or policy. Judge Netburn denied the reconsideration request and granted the SEC’s motion for clarification.
The SEC then re-asserted its DPP argument, after which Judge Netburn ordered the production of the documents in question. The SEC then filed objections to the three orders, which Judge Analisa Torres has now overruled.
The SEC is now required to produce documents from Hinman’s speech.
“Based on my understanding of the present state of Ether, the Ethereum network, and its decentralized structure, current offers and sales of Ether are not securities transactions.”
The debacle around Hinman’s statements is connected more broadly to an SEC lawsuit filed against Ripple Labs, its former CEO Chris Larsen, and its current CEO Brad Garlinghouse in Dec. 2020. In the lawsuit, the SEC alleges that the three entities illegally profited from selling XRP coins as unregistered securities.
Judge upholds previous court rulings.
Judge Torres considered Ripple’s assertion that the 2018 speech documents bore relevance to the case because “they may be used to obtain potential impeachment evidence or to impeach witnesses at trial,” including Hinman.
Judge Torres overruled the SEC’s first objection without being convinced that Judge Netburn made a mistake in ruling that the documents bore relevance to the case.
Regarding the SEC’s assertion of the protection, Judge Netburn ruled that Hinman’s speech documents regarding the status of cryptocurrencies as securities were his own and not the SEC’s, meaning that they were not protected under DPP. Judge Torres has rejected the SEC’s objections to this ruling.
Thirdly, Judge Torres could find no fault with Judge Netburn’s assessment of the content of the documents as not being legal advice intended to “guide future conduct” or “assess past conduct.”
One step closer to clearer industry guidelines.
By ordering the SEC to produce Hinman’s documents, the judge hands Ripple and its two executives a crucial win that potentially takes them one step closer to overturning the lawsuit that has lasted almost two years.
More importantly, the outcome is relevant to the SEC’s future characterization of cryptocurrencies and has therefore been closely watched by the industry.
Following the news, XRP’s price rose 10% and is trading at $0.50 at the time of writing.
It is still down 85% from its all-time high of $3.40. The SEC lawsuit has been blamed for the coin tanking.