SEC v. Ripple: Judge not happy with SEC’s arguments, Orders in-camera review

Rick Steves

“Let’s max out the conference call but give them zero to complain about”.

Judge Sarah Netburn has scheduled a telephone conference for today, 12:00 pm EST (New York time), to settle the privilege dispute that has been dragging on since April.

The SEC has argued its internal documents, which include the agency’s discussions over the nature of XRP and ETH, are protected by DPP (Deliberative Process Privilege).

That has been dismissed before by the Judge, two times already, as the Court considers those documents relevant to Ripple’s fair notice defense. The result of today’s hearing may well be a major win for Ripple.

The defendants have recently explained those documents will expose the agency’s contradictions in its decision-making throughout the years, which proves the SEC didn’t provide fair notice that XRP could be considered a security.

William Hinman’s deposition has already provided a general feel that regulatory clarity is something lacking in the SEC’s communications. Jeremy Hogan, an attorney friendly with the XRP community, has pointed out two bombshells in that deposition that could strengthen the fair notice defense.

The SEC yesterday filed a motion to compel Ripple to hand over recordings of specific meetings. “Ripple never informed the SEC that Ripple routinely recorded staff meetings until a key former Ripple employee testified to that in her deposition earlier this month”, said the plaintiff.

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11:00 pm – XRP Holders vow to “max out conference call”

Judge Netburn has published the dial-in for tomorrow’s discovery hearing (8/31) at 12:00pm EST (16:00 UTC):

USA: (844) 867-6163

INTL: (409) 207-6969

Access Code: 9453921#

Unauthorized recordings will be investigated and anyone found to engage in such behaviors may be subject to criminal sanctions, Judge Sarah Netburn said in a letter.

John Deaton, lawyer for the nearly 20,000 XRP Holders that filed a motion to intervene in the SEC v. Ripple lawsuit, has called his following to max out the conference call. The hearing is limited to 4,000 listeners.

The SEC has already complained about the enormous popularity of these hearings: “Given the high level of interest in this litigation, participation by thousands of investors has already proven “incredibly disruptive” to Judge Netburn’s court conferences.”

“Let’s max out the conference call but give them zero to complain about”, John Deaton said.

SEC v. Ripple: Judge aware of XRP Army’s investigative work – Atty Hogan

12:30 pm – Session has started, Phone lines in full capacity

XRP Holders have kept their promise and maxed out the conference call as requested by attorney John Deaton, proving how critical the lawsuit is for the digital asset space.

The Judge has reminded the audience that video and audio recordings or broadcasts are strictly prohibited and subject to criminal sanctions.

Judge Sarah Netburn first asked about the SEC’s aiding and abetting claim regarding the complaint against the individual defendants, if Brad Garlinghouse think it relies on objective or subjective foreknowledge that XRP was a security in 2013, to which counsel Matt Solomon replied that it had to be obvious to reasonable people.

If the status of XRP was not obvious to the SEC until filing the lawsuit in December 2020, it could not have been obvious to Mr. Garlinghouse, Ripple’s counsel stated.

Matt Solomon then mentioned the SEC’s use of the deliberative privilege process (DPP) argument to keep its internal documents from being handed over to the defendants. Mr. Solomon argued that the plaintiff went grossly overboard in regard to DPP and should be compelled to hand over those documents as requested by Ripple.

Judge not happy with SEC’s subjective interpretation

Then, the Judge moved to attorney Jorge Tenreiro, the SEC’s counsel, and asked his view of the “reckless standard” for the aiding and abetting claim made by the plaintiff.

Mr. Tenreiro first attacked Ripple’s analysis and stated that specific, simple foreknowledge alone is all that counts. “But was Mr. Garlinghouse’s action objectively reasonable?”, the Judge asked.

The SEC answered with a subjective argument – “He could sit before a jury and say he did or didn’t know” – to which the Judge interrupted “But that’s subjective!”.

The Judge asked again and Mr. Tenreiro repeated himself, i.e., not offering an objective interpretation of Garlinghouse’s alleged aiding and abetting of an unregistered securities offering.

Then, the SEC counsel complained that Ripple wants to “collapse everything” into “digital asset law” and look at “everything internally” and “swing the door open” which would be “very damaging”.

Judge wants to see “privileged” documents with her own eyes

Judge Netburn asked why the court can’t look at that and if it needs to determine dates on what was deliberation or is it an ongoing thing.

Mr. Tenreiro explained there is “pre-decisional” and a “post-decisional” process and there are plenty of examples in the privilege logs to argue different, concurrent deliberative processes.

“How am I supposed to know all that?”, the Judge interrupted as she decided she would conduct an in camera review of the SEC documents.

Mr. Tenreiro advised the Judge to exercise caution, while stating it could be “very prejudicial”. Judge Netburn reminded the SEC the defendants “won’t be reviewing them” (the internal documents) during the in camera review.

The Judge will thus proceed with reviewing the SEC’s internal documents on her own to then rule on the deliberative process privilege claim by the SEC. The ruling should be made after September 28.

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