Ripple scores mixed result against the SEC over privilege in XRP lawsuit

Rick Steves

“The Court agrees with Defendants that the consequential nature of the litigation supports disclosure.”

Judge Sarah Netburn has “GRANTED in part and DENIED in part” Ripple’s and individual defendants’ motion to compel the SEC “to produce certain documents that the SEC has asserted are protected by the deliberative process privilege”.

The ruling comes after a frustrating back and forth for nearly a year since the SEC repeatedly refused to deliver said documents despite the judge’s orders. After a motion to compel, both parties got together in a telephone conference in which the judge decided to proceed with an in-camera review before making a deliberation. That deliberation arrived today.

The court order includes the discussion over the applicable law for the deliberative process privilege, the context, and analogous situations. As to the application of the privilege to the documents submitted for the in camera review, the judge found that the SEC failed to establish that several sets of notes were protected.

“The deliberative process privilege is qualified, and it must yield to higher interests, where appropriate. To determine whether disclosure is
appropriate notwithstanding the applicability of the privilege, courts consider: “(i) the relevance of the evidence sought to be protected; (ii) the availability of other evidence; (iii) the seriousness of the litigation and the issues involved; (iv) the role of the government in the litigation; and (v) the possibility of future timidity by government employees who will be forced to recognize that their secrets are violable.” Under this analysis, the privileged documents need not be produced.”

Documents bear on Ripple’s fair notice defense

“Defendants’ primary argument for relevance is that the documents bear on Ripple’s fair notice defense and on whether Garlinghouse and Larsen “knowingly or recklessly” assisted Ripple’s alleged securities law violation”, the court order stated.

“As the Court has previously found, the fair notice defense focuses on the SEC’s behavior and is an objective test of how a reasonable person would have interpreted the agency’s conduct—that is, the agency’s external behavior.

“Defendants have not established that the SEC’s internal deliberations related to the digital asset space implicate the fair notice defense:
none of those deliberations was public, so market participants could not interpret or rely on them to guide their behavior.”

The judge added that the defendants also argue that the documents are relevant to their assertion that the underlying law was so unclear even to the SEC that the individual Defendants did not have the necessary state of mind for the SEC’s aiding-and-abetting claims.

“Consequential nature of the litigation supports disclosure”

In “Seriousness of Litigation and Issues Involved”, the Court states that it has expressly found that “this case is unique, that the nature of the case involves significant policy decisions in our markets and that the amount in controversy also is substantial and that the public’s interest in
resolution of this case is also quite significant. Some of the documents at issue go to the heart of the public’s interest in the case.”

“The Court agrees with Defendants that the consequential nature of the litigation supports disclosure. As discussed below, however, the significance of the issues in this case cuts both ways: SEC employees need to be able to deliberate unsettled law in an emerging market
without fearing that their communications will be subject to public scrutiny. On balance, this factor therefore weighs slightly—but not strongly—in favor of disclosure”

Ripple gets emails discussing Hinman’s speech

The conclusion of the court order goes: “Defendants’ motion is GRANTED in part as to Parts A, C-F, H-K, N, and P of Entry 1 of Appendix A, and GRANTED in full as to Entry 9 of Appendix A.

“To the extent the SEC believes discrete portions of the notes in Entry 1 express the notetakers’ own thinking or reflect deliberations or communications among SEC staff, the SEC may seek leave for limited redactions. Defendants’ motion is otherwise DENIED.

“The SEC is further ordered to review its privilege log and produce, in full or in part, any documents previously withheld based on the privilege that would be inconsistent with this order.”

Attorney Jeremy Hogan commented on the ruling, saying “Ripple did not do as well as I thought they would […] Score: SEC = 2 Ripple = 1

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