A U.S. magistrate judge has ruled that the Securities and Exchange Commission (SEC) should give Ripple access to some of the documents it has been fighting to keep hidden, including a draft email by former director William Hinman on Ether.
Ripple has been going after several documents held by the SEC, which it believes could help prove its case in which it claims that the watchdog didn’t give fair notice. Among them is an email with the draft speech that Hinman famously delivered in 2018, claiming that Ether isn’t a security.
Judge Sarah Netburn of the Southern District of New York has ruled in favor of the payments company, granting it access to some of the documents, including the email. However, the judge also denied Ripple access to other documents, which she said are protected by the deliberative process privilege (DPP).
DPP is a common-law principle that protects information showing the process by which a government agency reached a particular decision or made a specific policy from disclosure to third parties.
The SEC has been arguing that DPP protected the email. However, as the judge pointed out in her ruling, Hinman himself stated during a deposition that he was expressing his personal views when he said that Ether wasn’t a security.
“…the personal views of agency employees are not protected by the privilege unless they bear on ‘the formulation or exercise of policy-oriented judgment’” Judge Netburn stated.
“Although Hinman and the SEC admit that agency staff discussed his speech, it appears that this speech was ‘merely peripheral to actual policy formation,’ and not an ‘essential link’ in the SEC’s deliberative process with respect to Ether,” she added.
Hinman’s speech, which he made while he was the director of Corporate Finance at the SEC, was taken by many in the digital currency market as an official SEC position. The then-SEC chairman Jay Clayton even referred to it as proof that the SEC was offering guidance to the market during an interview months later. However, Hinman turned around last year and claimed that he was just giving his take on the market.
Judge Netburn turned down Ripple’s request to access other documents, including notes between the SEC and Ripple and discussions it held with other government agencies on digital currencies.
The SEC vs. Ripple legal battle has dragged on for over a year ever since Jay Clayton, in his last action as the SEC head, charged Ripple with conducting an illegal securities offering in December 2020. Each side has had minor battle victories as they fought over whether the SEC gave Ripple fair notice, but none emerged significantly ahead.
Fox Business recently learned from sources close to the case that the trial would take even longer as the expert discovery in the case is set to be pushed by a month due to the Omicron variant.
The Ripple case all hinges on the ‘fair notice’ argument. Ripple claims that the SEC hadn’t established clear guidelines that a reasonable person could interpret to mean that digital currencies, including XRP, are securities. The SEC points to all the digital currency cases it has brought before U.S. courts, winning many, as precedent.
And in a surprise move, the regulator recently urged the court to consider a similar case in which the SEC came out victorious. The watchdog took John Fife to court for selling $21 billion in penny stocks without registering as a securities dealer. Fife, just like Ripple, pleaded a lack of fair notice, arguing that the term “dealer” could be interpreted in several ways. The SEC won, however. In Ripple’s case, the battle is around the terms “investment contract.”
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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