By Matthew Russell Lee, Patreon Podcast
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SDNY COURTHOUSE, July 13 – In SEC v. Ripple Labs Inc. et al., a discovery hearing was held before U.S. District Court for the Southern District of New York Magistrate Judge Netburn. Inner City Press live tweeted it, see below, then put underlying emails on Patreon here.
After an SEC submission now on Patreon here, podcast here, Judge Netburn held another conference, this time on whether the SEC can get access to legal advise to Ripple. Inner City Press fought to cover it and did, live tweeting it here and below.
On July 13, 2023, Judge Torres ruled inter alia that "The Court holds only that Ripple’s sales of XRP to the Institutional Buyers were offers and sales of investment contracts. To the extent the SEC instead argues that Ripple actually sold investment contracts to the public and used the Institutional Buyers as underwriters, the Court rejects that argument. the SEC’s motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants’ motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales. The Court shall issue a separate order setting a trial date and related pre-trial deadlines in due course."
From earlier conference: Judge Netburn: A lawyer might say, It's clear (or not clear) that XRP should be regulated as a security. In a sense that's expert testimony. Ripple's lawyer's view was just one view. But now the defense is focused on external factors...
Judge Netburn: I haven't seen a case about a fair notice defense that deals with the subjective view. The Chipotle case talked about a good faith belief. But my reading of the cases as to fair notice is that an entity's subjective belief is not relevant.
SEC's Jorge Tenreiro: I would point the court to the US v. Exxon case from the DDC where what happened is, the party tried to say, My defense is based on what the Dept of Energy said. And the judge said, No, you can't cut it up like that.
SEC's Tenreiro: I keep citing Chipotle because it's almost on all fours --
Judge Netburn: It was also written by a very smart judge.
Tenreiro: Look at the memo from Law Firm A. There were subsequent communications with those lawyers. We need those, not just those that Ripple has chosen to disclose to the market. They are a market participant - they are the important one, the one with the asset
SEC's Tenreiro: What if Mr. Garlinghouse was quoting in an email after [ex-SEC] Bill Hinman's speech -- Judge Netburn: We can look and see what Ripple did. But attorney client communications are of a different sort, and protected for a good policy reason.
SEC's Tenreiro: What if their lawyer told them, you still have to deal with the SEC? That would be game over for their defense, that they were confused. We don't know what they have given the exchanges... Ripple tells us, what you were thinking is relevant.
SEC's Tenreiro: If Ripple was not confused, what does it matter if we were confused? In Chipotle it is said that attorney client has to be construed narrowly. If the lawyers told them, it's confusing, it helps them. But if not...
SEC's Tenreiro: If they got advice that identified the standards they need to follow, that the speech doesn't apply to them, then it's different. The policy concerns weight for disclosure here. This has become the heart of the case.
Judge Netburn: I'll turn to Ripple. Ripple's lawyer Gregory Rapawy: Here the SEC is asking the court to declare a broad waiver. They argued the selective disclosure doctrine from Von Bulow [Here's something, mid-thread, here]
Ripple's Rapawy: It doesn't matter that we believed and believe that XRP is not an investment contract - it's strict liability. Our defense is fair notice, not on our state of mind.
Ripple's Rapawy: Neither parties communications are "at issue," and therefore there is no waiver.
Judge Netburn: The SEC says the individual defendants are using a good faith defense, and that you claim to Judge Torres that the evidence will be the same.
Judge Netburn: The SEC was saying, You may have been impacting the market in a biased way. Ripple's Rapawy: Under Von Bulow, selective disclosure prior to litigation does not constitute a waiver.
SEC's Tenreiro: The Chipotle [case] is to the contrary. Page 19 of their opposition, I'm not going to read it since it's redacted. But they said they believed XRP was not an investment contract. So it's at issue.
Court reporter: He cut out for one minute. SEC's Tenreiro: County of Erie dealt with a very specific qualified immunity defense... Finally your Honor, the question is, Do they unfairly influence the market.
Judge Netburn: I'm going to take it under advisement. I will get an order out as quickly as possible.
On May 19, Judge Netburn issued an order including that "[t]he SEC is ordered to produce all documents obtained in response to the Requests. In addition, to improve transparency in the process, the SEC is ordered to produce copies of all previously served Requests within 14 days and produce any subsequent Requests within 14 days of their service. To the extent the SEC believes it has a proper claim of privilege, it must simultaneously produce a privilege log." Full order on Patreon here.
On May 6, Judge Netburn issued another order: "ORDER granting in part and denying in part [126] Letter Motion for Discovery. Having reviewed the parties' submissions, the Court makes the following clarifications: (1)The SEC must produce communications with third-parties, including external agencies and market participants, subject to a privilege assertion. (2)The SEC need not produce informal intra-agency communications, such as emails, and such communications need not be searched or logged. (3)Intra-agency memoranda or formal position papers discussing Bitcoin, Ethereum, and XRP must be searched for and produced subject to a privilege assertion. Examples of such documents include Division reports, final reports of internal working groups, or formal position papers submitted to the Commissioners. Although such documents may ultimately be privileged, information that would be provided on a privilege log, such as dates and participants, may itself be relevant and is discoverable. (4)Any documents withheld on the basis of privilege must be identified on a privilege log. (5)The Court directs the parties to continue to meet-and-confer on the remaining issues presented in their letters. Respectfully, the Clerk of Court is directed to GRANT in PART the motion at ECF No. 126. (Signed by Magistrate Judge Sarah Netburn on 5/6/2021)."
On May 7, the SEC asked Judge Netburn for a conference to ask for an order compelling Ripple to "produce documents... discussing any legal advice Ripple sought or received as to whether Ripple's offers and sales of XRP were or would be subject to, and incompliance with, the federal securities laws." Then many exhibits are withheld. Watch this site.
From April 30: Netburn: There is not much case law in this area. [That's an understatement.]
Judge Netburn: The SEC's request to a foreign party could be rejected. But once a foreign regulator gets involved, it may be more compulsory.
Lawyer: These are binding agreements, part of international law. It's not just the SEC calling up and saying, Could you help us? There is a treaty. That's not a request. It's back by the weight and power of the US government. Defendants don't have the same power.
Lawyer: There should be a level playing field. Once the litigation beings, the SEC should play by the same rules we have do - the Hague Convention, letters rogatory. The SEC has to abide by this.
Judge: If you agree you and the SEC could use the Hague Convention, what's the difference between that and the SEC's MOU, except that it's a bit easier for the SEC?
Lawyer: We only found out because a foreign party told the company and we raised it to the SEC
Lawyer: Under the Hague Convention, they'd have to make the request to you and we'd see it. Here, the SEC is operating outside the supervision of the court, in secret.
Lawyer: The SEC rushed at the end of the year, as the Administration was turning over. Now they have to play by the rules.
Lawyer 2: Once the SEC files a complaint, they are subject to the Court's rules. They are evading that to conduct extensive intl discovery
Lawyer 2: The SEC can skew the evidence by limiting what they ask for. Domestically, we see the subpoena first and can add our own request. Same internationally on letters rogatory. But that's not the case on int'l MOUs. And that's critical.
Lawyer 2: The SEC has asked for critical information from 13 sources, about the impacts of Ripple's announcement, the connection to market movements. But they couched the request to get only the info they think supports their argument.
Lawyer 2: We need info on all sales and RPX, back to 2013. That information is hard to get and the Hague process is too slow for this case. We need to keep this case moving for RXP holders and business partners.
Lawyer 2: When the SEC filed this suit, many exchanges drops XRP and many hedge funds dropped XRP from their portfolios. Other jurisdictions that have concluded that XRP is not a security are being hit with these requests, and they are "freaked out"
Lawyer 2: They are trying to destroy our business before we have our day in court. They used the file number from their original investigation, not acknowledging that it's already a case in court. They are no longer in their Article 1 world. It's time for Article 3
Judge Netburn: Does the SEC want to respond now? SEC Lawyer (Inner City Press has covered him before): There are authorized multilateral requests. Section 6A says it creates no rights or obligations. Some have not responded to us. SEC lawyer: It's not akin to compulsory process. The only case on point is "Badian," Judge Pitman said it's like voluntary discovery. Look at Docket 136-2, page 8... It depends on the regulator's discretion. Chief Judge Swain said this doesn't change anything
SEC lawyer: They'll get all the documents at the end. And they can object to admissibility. Lastly, they're able to locate evidence abroad using their impressive business relationship. They are saying, That takes too much time, let's go forward without evidence
SEC lawyer: Defendants have used FOIA, that's not subject to the supervision of the court. The SEC is not a "super-litigator" but is a government agency. They have contractual relations that the FRCP don't get at. So we can do this
SEC lawyer: We want to get it resolved quickly too. Now they tell us it's too fast. It's not inequitable. Thank you.
Judge Netburn: Why would your request to foreign regulators be privileged? And if so, why not on privilege log? SEC lawyer: We'll put it on a log.
SEC lawyer: Our letters to the regulators state our theory of the case. That's work product. They're not entitled to it. Judge Netburn: They say you've provided categories, not redacted versions of the request. SEC lawyer: We've extracted the request.
SEC lawyer: We've requested inter-day trades, XRP's status, if they want to call those "categories." Why do they need a copy of the letter? There are sensitivities. Paul Weiss lawyer: The Judge Pitman case, they are incorrect. These requests are not voluntary.
Judge Netburn: What about your use of FOIA, that could be considered compulsory. [Inner City Press aside: That's not how many agencies, including financial regulators like the OCC and Fed, seem to view it.] Paul Weiss lawyer: The government has more power.
Judge Netburn: I'm going to take this under advisement. I'm afraid I'm not going to rule now - I have to look into some things. Inner City Press will stay on this.
The case is Securities and Exchange Commission v. Ripple Labs Inc. et al., 20-cv-10832 (Torres / Netburn)
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