Ripple has been dealt a blow in its legal battle against the U.S. Securities and Exchange Commission (SEC) after a judge denied it access to the regulator’s employees trading records. Ripple had hoped that the records could go towards its lack of fair notice defense, arguing that they would prove that there was a lack of regulatory clarity even with the employees.
Ripple had filed a motion in which it sought documents reflecting the SEC’s trading preclearance decisions with respect to its employees’ transactions in digital currencies, including XRP.
The San Francisco company had first sought the regulator’s trading policies regarding digital assets, to which the SEC obliged. It produced its January 2018 memorandum in which it provided ethics guidance to its employees regarding digital assets. This helped Ripple build the case that prior to this, the SEC didn’t have any policy on digital assets, which the regulator didn’t dispute.
According to Ripple, if the SEC’s employees were allowed to trade XRP, then the regulator’s allegations that the company acted recklessly would be undermined. As such, it was critical for the company to get its hands on the trading records to prove that while the regulator went after the company, its employees were cashing in on XRP’s price rise.
However, Judge Sarah Netburn of the Southern District of New York has thwarted Ripple’s efforts. The judge upheld the SEC’s argument that the preclearance decision process for any asset “does not involve any determination by SEC Ethics Counsel that a trade complies with the securities laws.”
Judge Netburn ruled, “Because the preclearance process does not consider whether an asset is a security, Defendants have not shown that such individual trading decisions bear on the issues in this case. Although the SEC’s policies (or absence of policies) may provide relevant evidence related to fair notice or recklessness, how an Ethics Counsel viewed a trading decision is more likely to cause confusion or create collateral litigation disputes.”
The data relating to the preclearance decisions is not sufficiently probative, and therefore, “it cannot justify the intrusion into SEC employees’ financial conduct, even if anonymized or aggregated,” she added.
In addition, the U.S. Congress has presumptively prohibited disclosure of such financial information through federal privacy statutes and regulations so as to protect government employees’ privacy, the judge noted.
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