Judge Hands Ripple a Win: SEC Must Turn Over Hinman Emails!

January 14, 2022 7:17 pm

Big news out today as Judge Netburn handed Ripple Labs a big win in its effort to obtain documents from the SEC in discovery.

The story was so big that even Yahoo Finance covered it.

Take a look:

The Hinman Emails and many other documents sought by Ripple have long been eyed as a pivotal turning point in the case.

If the SEC had won this motion, many believed Ripple would have been severely disadvantaged.

But today the leverage seems to have swung strongly in Ripple’s favor.

Will the SEC throw Hinman under the bus after this latest turn of events?

John Deaton weighed in:

And the Digital Asset Investor broke down which documents Ripple is now entitled to receive.

It’s more than just Hinman’s emails:

Are we finally going to find out what this was all about?

You can read Judge Netburn’s full order here:

https://storage.courtlistener.com/recap/gov.uscourts.nysd.551082/gov.uscourts.nysd.551082.413.0.pdf

Here are more details from Yahoo Finance:

SEC attorneys claim these documents contain staffer deliberations and are protected against discovery. Magistrate Judge Sarah Netburn of the Southern District of New York federal court, ruled some of these documents are protected but ordered the regulator to turn over others, including the email with Hinman’s speech and some notes from meetings between SEC staffers and third parties that are not Ripple.

“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,” Ripple General Counsel Stu Alderoty said.

The SEC did not respond to a CoinDesk request for comment.

Read more: Judge Denies Ripple’s Motion to Have SEC Employees’ Crypto Transactions Disclosed

An email of a draft of a 2018 speech by Hinman, former director of Corporation Finance, is included in the list of documents to be surrendered. Hinman gave the speech in June 2018, telling the audience at a conference that, in his view, ether was not a security.

The speech was seen as pivotal for the crypto industry, given the first 60 million ether (the native token of the Ethereum blockchain) was sold to raise funds for the Ethereum Foundation. Ether is now commonly seen as a commodity in the U.S., with the Commodity Futures Trading Commission overseeing derivatives products based on the cryptocurrency.

Hinman’s speech reflected his own views, he said at the time, a point the judge referenced on Thursday in her ruling.

“The personal views of agency employees are not protected by the privilege unless they bear on ‘the formulation or exercise of policy-oriented judgment,’” the judge said in a 23-page ruling. “Accordingly, emails concerning the speech or draft versions are neither pre-decisional nor deliberative agency documents entitled to protection.”

While the email with the draft speech must be turned over, a separate email sent by the Office of the Chief Counsel for Corporation Finance the day before his speech does not need to be turned over, the judge wrote.

“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,” she said.

Interestingly, attorney Jeremy Hogan was not as excited about the ruling as you might expect.

Hogan posted that Ripple did NOT do as well as he expected in the ruling:

More impressed was the always entertaining Mr. Intuitive:

Spot on, sir!

Here’s more on the critical Hinman speech and why it’s so important, from Decrypt:

The speech in question was delivered by a former top SEC official, William Hinman, who told the audience at a Yahoo Finance crypto summit that Ethereum was not a security because it was sufficiently decentralized.

That speech has also become central to the court case in which the SEC argues that Ripple and its top executives knew the blockchain’s digital currency, XRP, was a security that needed to be registered with the agency but sold it to the public anyway.

As part of its legal strategy, Ripple has sought to obtain evidence about how Hinman decided Ethereum was not a security—evidence that could help the company rebuff the SEC’s claims about the nature of XRP.

Thursday concerns a larger batch of documents, including notes by the SEC’s crypto expert, Valerie Szczepanik, about a variety of SEC deliberations, as well as emails in which Hinman and others discussed a draft of the Ethereum speech.

Ripple CEO Brad Garlinghouse speaks at TechCrunch Disrupt SF on September 5, 2018 in San Francisco. Image: Steve Jennings/Getty Images for TechCrunch (CC BY 2.0)
SEC vs Ripple: Inside the Case That Could Make or Break the Crypto Industry
It was a bad start to Christmas. Brad Garlinghouse and Chris Larsen’s digital currency company Ripple had been riding high in 2020 amid the first crypto bull market in years. Then, on December…

The SEC had argued that the documents were subject to what is known as “privilege”—a legal term that means a party does not have to share them with its opponent in litigation. The SEC invoked attorney-client privilege as well as other forms of privilege designed to shield government agencies in certain situations.

U.S. Magistrate Judge Sarah Netburn agreed with the SEC when it came to certain documents, but rejected the agency’s argument for more than a dozen batches of other documents. In the case of the emails about Hinman’s speech, Netburn concluded that the privilege did not apply because the speech concerned his personal views, not those of the agency.

Here is the key part of the decision:

“Although Hinman and the SEC admit that agency staff discussed his speech, it appears that this speech was ‘merely peripheral to actual policy formation,’ Tigue, 312 F.3d at 80, and not an ‘essential link’ in the SEC’s deliberative process with respect to Ether, Grand Cent. P’ship, 166 F.3d at 482. Accordingly, emails concerning the speech or draft versions are neither predecisional nor deliberative agency documents entitled to protection.”

Netburn’s decision will provide Ripple with new ammunition to use both in its legal pushback, and in the court of public opinion, where many—especially in the crypto industry—believe the SEC has been unduly harsh on the company.

Here’s more from attorney Jeremy Hogan breaking down the case and when and how it might all end:

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