SEC v. Ripple heats up with battle over legal advice

Rick Steves

Judge Sarah Netburn ruled in favor of granting Ripple Labs access to the SEC internal discussions over cryptocurrencies. Now, it’s the other way around, but attorney-client privilege may stand in the way.

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The Southern District Court of New York has ruled last week against Ripple’s bid to stop the SEC from seeking information from foreign partners via their respective regulators – the MOUs.

Judge Netburn gave the SEC an important victory over Ripple Labs as the lawsuit brings heat to the cryptocurrency ecosystem. Decisions made over this case are expected to produce a meaningful precedent for future legal battles in the United States and may even inspire other jurisdictions’ regulatory frameworks.

Other U.S. financial watchdogs, such as the CFTC, are closely watching the outcome of the case. Clarity on whether XRP is a security will be crucial, said CFTC’s Commissioner Stump.

Regarding the battle to end the SEC’s overseas activities, Ripple Labs claimed these are “extra-judicial tactics that are not available to Defendants or other litigants and should not be available to the SEC here.” This move is seen by many, including the defendants, as an intimidation tactic as it threatens Ripple’s business relationships.

With that legal round lost, Ripple is now fending off the SEC’s attempt to obtain the documents containing the legal advice Ripple received in 2012 regarding the nature of XRP.

“The SEC’s Motion rests on one principal argument: the “fairness doctrine” requires that Ripple produce the legal advice it sought or received as to whether its offers and sales of XRP were or would be subject to the federal securities laws because Ripple has put such advice “at issue” in this litigation.”

“In this Motion, the SEC does not argue that “subject-matter waiver” has occurred. Therefore, the timing of Ripple’s waiver of the attorney-client privilege with respect to certain legal advice Ripple received—the point to which Ripple devotes most of its opposition, Opp’n at 1-3—is not relevant.”

At the hearing, the SEC attorney Jorge G. Tenreiro said Ripple’s lawyers knew what the law required and that it could be a security: “Their lawyers knew from the very beginning, and to now come and say to the court, “nobody knew”, and leave us unable to rebut that by showing all of the advice that they got, not just what they selectively disclosed to third parties, is fundamentally unfair and fundamentally against the fairness principle as recognized in this circuit.”

It was in late April, that the SEC filed the motion to dismiss Ripple’s “lack of due process and fair notice” defense that the XRP token could be deemed a security.

Ripple then filed its Memorandum of Law in opposition to the SEC’s motion to strike Ripple’s lack of due process and fair notice affirmative defense. The defendant pointed to regulator’s misrepresentations of the Judge and omissions in a move that put the SEC to shame.

During the hearing, it seems that SEC’s Jorge Tenreiro said that Ripple Labs wants to push for a Summary Judgement on its lack of due process and fair notice affirmative defense.

A Summary Judgment on the Fair Notice defense in August could even be before the hearing on whether XRP is a security or not.

“A Ripple victory at that hearing would of course end the whole case. Would XRP have “clarity” then? Yes and no. XRP’s status would not, but no one could be sued after that by the SEC because there would be case precedent that no one had Fair Notice anyways”, said attorney Jeremy Hogan.

Soon, Ripple Labs will file the response to the SEC’s motion to produce the abovementioned legal advice. In early April, U.S. Magistrate Judge Sarah Netburn ruled in favor of granting Ripple Labs access to the SEC internal discussions over cryptocurrencies.

While Ripple Labs fends off the SEC’s advances, co-founders Brad Garlinghouse and Chris Larsen had requested the complaints against them to be dismissed. The SEC, however, has recently filed a motion doubling down on their guilt.

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