- The SEC and Ripple have raised the tempo this week, and we look at what has been good for Ripple, the bad and the outright ugly.
- The Hinman deposition was undoubtedly the biggest revelation, and while it may have looked like a slam dunk by the SEC, one legal expert found a loophole that Ripple can exploit.
This week was branded by legal minds as “Hell Week” as far as the securities violation lawsuit by the U.S Securities and Exchange Commission (SEC) against Ripple Labs Inc. was concerned. And it hasn’t disappointed. One motion after another has been filed in court and while some of them favored Ripple, the SEC came out stronger than many expected and tipped the scales. But it’s not over yet for the XRP community as we head into the last week of facts discovery.
Ripple’s big mistake that could prove costly
The first battle between the two entities has been for Ripple’s Slack communication. The San Francisco firm filed a motion this week that shed a light on how it plans to defend itself. It described the move as “a costly fishing expedition” that would take months and come at “very significant cost.” The SEC’s request is also “unreasonably duplicative of Ripple’s extensive production of over one million pages of discovery…”
This is a good defense for Ripple, Attorney Jeremy Hogan believes. There’s no need to seek Slack messages from not-so-important staffers at Ripple, including people like the receptionists and the interns.
However, further down in its response, Ripple revealed a major oversight on its part.
It stated. “Although Ripple’s collection of Slack data was significant, Ripple’s e-discovery vendor inadvertently failed to collect Slack DMs and MPIMs. This mistake was not discovered until July.”
Ripple will now have to backpedal and explain to the judge why their discovery company failed to collect such critical information. “There’s just no good answer,” Hogan believes. The attorney predicts that because of this, Ripple is most likely going to lose the battle to keep its Slack messages private.
The SEC cheekily backtracks on access to internal memos
This week also saw the battle for the SEC’s internal memos intensify. Back in April, Judge Sarah Netburn ordered the SEC to produce, among others “intra-agency memoranda or formal position papers discussing Bitcoin, Ethereum and XRP…”
It has been fighting this ever since, terming it as punishing “frank governmental deliberations.” However, realizing that Judge Netburn was starting to get ‘pissed off’ about this, the SEC has backtracked, and has done so cheekily.
In one of its motions this week, the SEC slid in a critical detail on the footnote revealing that it was no longer fighting Ripple’s access to the internal memos.
“…the SEC determined to no longer assert DPP (deliberative process privilege) over part or all of approximately 40 previously withheld documents,” the watchdog stated.
The Hinman bombshell(s)
Hinman’s deposition is, however, the biggest revelation of the week. To start off, just about 90 pages were availed to the public, out of 500+, as the deposition took about 9 hours. And even with the 90 pages, a majority of it is redacted.
However, from what was available to the public, we learned that Hinman claimed to have told Ripple, “…you’re continuing to offer XRP without any kind of restrictions that would apply as a securities offering. If you want to come into compliance you have to stop doing that, and they understood that.”
This augurs well for the SEC and is very bad for Ripple.
Read More: “I told you XRP was a security” – Bill Hinman turns on Ripple in latest blow
Further down on the deposition, Hinman revealed that the first meeting with Ripple was in 2018. However, it wasn’t until 2020 that he told the company it was violating securities laws. And in that same year, the SEC sued the company. Of note is that the SEC started investigating Ripple in 2019, a year before the purported Hinman clarification.
And then there is another bombshell from Hinman. The former regulator was asked about the SEC’s requirement that if any of its officers is going to investigate a company, he can’t buy its securities. This is done to ensure that the SEC officials remain objective and don’t have their judgment and actions clouded by prospects of making some money from their assets.
Ripple’s legal team asked Hinman, “Am I correct that digital assets were not covered by the securities clearance form until 2018?”
Hinman’s lawyer stepped in and protected him from answering this question. However, as Attorney Hogan observes, it’s very clear that the Ripple legal team already knew the answer to their question. That answer is that the SEC didn’t consider digital assets as securities for its ethics purposes until 2018.
“That bodes very well for Ripple as far as its fair notice defense for the period from 2013 to 2018 is concerned,” Hogan believes.
The coming week could also prove to be critical in the case. It will be the last week before the facts discovery deadline on October 1 and the two parties are likely to kick up their facts discovery efforts a notch.
