The SEC suffered a setback in its case against Ripple when the judge presiding over the case ordered the former to turn over former Director of Corporation Finance William Hinman’s speech on Ethereum, a move which works in favor of Ripple.
The statement made by Hinman supports Ripple’s case, questioning the validity of the fair notice defense.
A Little Background
Ripple had been sued by the SEC in 2020, with the latter bringing a host of charges against Ripple and its founders. The SEC contended that Ripple sold and continues to sell XRP in violation of federal securities law. They stated that Ripple was aware of XRP’s status as a security. Since the initiation of the suit, Ripple and the SEC have been involved in a continuous back and forth regarding the documents needed to be made available through the discovery process. On its part, Ripple has requested several documents regarding the SEC’s internal policies and communications.
SEC Refuses To Release All Documents
Attorneys representing the SEC have claimed that the documents that Ripple is asking to be released contain staffer deliberations and are hence protected against discovery. However, Magistrate Judge Sarah Netburn of the Southern District of New York ruled that while some documents are protected, other documents, which also included an email with Hinman’s speech, and other documents from meetings between SEC staffers and third parties be turned over.
Speaking about the order, the General Counsel for Ripple, Stu Alderoty, commented,
“We’re pleased with the Court’s order, which grants Ripple access to important documents that the SEC was withholding. We will continue to aggressively defend this case – and we remain optimistic that resolution of this case will provide much-needed clarity to the industry.”
William Hinman’s Speech
One of the documents that the SEC would be required to surrender is a draft of a 2018 speech by William Hinman. The email draft contains excerpts from Hinman’s speech telling an audience that he believed Ether was not a security. The speech is significant for the crypto industry because the first 60 million ETH were sold to raise funds for the Ethereum Foundation. However, Ether is now viewed as a commodity, falling under the Commodity Futures Trading Commission, the organization that overlooks derivative products based on crypto.
Speech Contained Personal Views
Hinman had stated at the time that his speech reflected his own views, a point that judge Netburn made a reference to during her ruling, stating,
“The personal views of agency employees are not protected by the privilege unless they bear on ‘the formulation or exercise of policy-oriented judgment. Accordingly, emails concerning the speech or draft versions are neither predecisional nor deliberative agency documents entitled to protection.”
However, the judge also ruled that a separate email sent by the former director a day prior to the speech needn’t be turned over.
“The documents related to SEC staff’s legal analysis of XRP contained the SEC’s staff preliminary views during the Division of Enforcement’s investigation into XRP and did not present a recommendation to the SEC.”
The SEC also does not need to turn over any notes from meetings between Ripple and SEC staffers. Ripple has sought access to 14 separate entries and three additional documents.
Gensler Remains Adamant
In an interview with CNBC Squawk Box, Gary Gensler, Chairman of the Securities and Exchange Commission, stuck to his guns, calling most cryptocurrencies, including Ether, securities. However, again, Gensler did not provide any clarity as to why he would classify them as securities.
When asked if he thought Ethereum should also be viewed as a security, he stated,
“If you’re raising money from the public and the public is in anticipation of profit based upon that promoter’s, sponsor’s, that group’s, efforts, that’s within the securities laws.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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