Ripple lawsuit: SEC ordered to pay for improper conduct amid report on XRP

Rick Steves

While Judge Sarah Netburn ultimately allowed the “late testimony”, thus reopening discovery until May 13 to re-depose Dr. Metz, the court has decided to punish the SEC.

Ripple has lost its motion to strike the Metz Report, in which the defendants rose against the SEC for its “gamesmanship”.

The plaintiff filed the supplemental report on the discovery deadline, sparking calls for it to be dismissed. The move by the SEC was widely seen as a tactic to force a further delay in the case.

While Judge Sarah Netburn ultimately allowed the “late testimony”, thus reopening discovery until May 13 to re-depose Dr. Metz, the court has decided to punish the SEC.

The court stated “the SEC has conducted itself improperly by serving an unauthorized supplemental report on the last day of discovery”. For that, “the SEC is ordered to pay Defendants’ reasonable expenses in filing their motion to strike and re-deposing Dr. Metz. The parties’ prior agreement that each side shall cover the costs of their own expert’s time shall control; accordingly, the SEC shall also cover the costs of Dr. Metz’s time.”

In other news, the court denied the motion to compel the SEC to produce the Estabrook notes because Judge Sarah Netburn found it to be protected by privilege. Since Brad Garlinghouse was in that meeting, his testimony will be “very very powerful […] no questions asked”, according to attorney Jeremy Hogan. 

Court allows Metz report despite SEC’s “gamesmanship”

Ripple had asked the court to strike the Metz report because the SEC failed to make the necessary disclosure without proper justification. Additionally, the defendants reminded the Judge that Ripple would suffer significant prejudice if discovery is reopened, not only for the resources allocated but also because of further delays to the resolution of the SEC v. Ripple lawsuit.

The defendants enumerated a list of reasons why the court should refuse the SEC’s supplemental expert report but the last one was pointier.

“A continuance would reward the SEC for its gamesmanship, and further prejudice Defendants. The SEC has already asked the Court for numerous extensions in this case that Defendants have vigorously opposed”, the letter stated.

Metz Report analyzes correlation between XRP price and Ripple news

The infamous Metz report is a statistical analysis of the economic significance of Ripple’s news announcements, but the document has been criticized for failing at basic math.

Twitter user @TheXRPArsenal pointed out that “97 out of 500 ‘news’ price rises accounts for around 20% of the data. It was observed that 40% of BTC/ETH moves resulted in $XRP moves. Last time I checked, 40% is more than 20%.

“In addition, 40% of the 7 years that were analyzed equates to 1022 days. 10x the amount of days that Dr. Metz states that $XRP was subject to positive movement due to ‘Ripple news’. These stats just serve to prove $XRP is more bound to the wider market than Ripple.”

Below is the transcript of the SEC’s statistical findings on XRP news:

“In his initial Report, Dr. Metz was asked to analyze XRP’s price movements and assess whether actions by Ripple impacted XRP’s price. Accordingly, Dr. Metz conducted an event study that identified more than 500 separate news announcements by Ripple (or news items about Ripple linked to Ripple’s website) and employed a scientifically-accepted statistical analysis to examine whether the price of XRP increased in response to several categories of positive news about Ripple or XRP.

“Dr. Metz found that the price of XRP rose significantly in response to: 8 key milestone events, 5 listings of XRP on new trading platforms, 77 Ripple customer and product developments, and 7 Ripple commercialization initiatives. Dr. Metz also identified 105 days in which positive Ripple news events were correlated with significant abnormal (positive) XRP price returns that could not be explained by random chance.

“Finally, Dr. Metz examined the relationship between XRP prices and the prices of Bitcoin and Ether, in order to determine whether the price movements of XRP over time followed the price movements of those other tokens. Dr. Metz concluded that, between 2014 and 2020, the price movements of those two tokens (BTC and ETH) were correlated with only 40% of XRP’s price movements.”

The report supposedly backs the SEC’s claim that XRP is a security under Howey. The test attempts to determine if there is an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.” If so, the transaction is subject to disclosure and registration requirements under the Securities Act of 1933 and the Securities Exchange Act of 1934.

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