The Securities and Exchange Commission (SEC) must turn over the documents written by its former director William Hinman to Ripple Labs in its ongoing court battle over XRP securities violations, New York Judge Analisa Torres has ruled.
The documents have been the biggest battleground in recent months, with the SEC putting up two different defenses to stop Ripple from accessing them. Both have failed, and in her ruling, Judge Torres has ordered the regulator to finally turn over the documents to the payments company.
The documents relate to the infamous and contentious speech Hinman made in 2018 at the Yahoo Finance All Markets Summit. Hinman was the Director of the Division of Corporation Finance at the time. In his remarks, he exempted BTC and Ethereum from securities violation, basing his argument majorly on the two networks’ “sufficient decentralization.”
“…based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions,” part of the speech stated.
While he has since left the SEC, Hinman’s speech still haunts the regulator, and Ripple has been latching onto it as proof that in and of itself, XRP isn’t an investment contract; XRP is like Ether and if Ether isn’t a security, neither is XRP, they argue.
The regulator has tried various tactics to deter Ripple from accessing the documents that eventually translated to Hinman’s speech. At first, it claimed that Hinman was speaking as an individual and his views were not representative of his then-employer.
When this failed, the regulator claimed “deliberative process privilege,” which protects government agencies’ decision-making process. New York Judge Sarah Netburn dismissed this defense as well.
The SEC then turned to attorney-client privilege, claiming that Hinman had received legal guidance from SEC lawyers. Judge Netburn wasn’t amused by this defense either, terming it contradictory and hypocritical.
The regulator objected to Judge Netburn’s ruling, and it’s this objection that Judge Torres has now dismissed in the latest twist to the Ripple-SEC long-standing battle.
Judge Torres agreed with Judge Netburn on EVERY single issue related to the HINMAN EMAILS.
Attorney-Client Privilege: Check
— Jeremy Hogan (@attorneyjeremy1) September 29, 2022
In her ruling, Judge Torres pointed out that she can only overturn a ruling “where it has been shown that the magistrate judge’s order is clearly erroneous or contrary to law.”
The judge further upheld rulings that the Hinman documents are relevant to the case and are not protected under deliberative process privilege (DPP) or attorney-client privilege.
Under relevance, she agreed with the SEC that the documents might not be “directly relevant to any claims or defenses in this case.” However, like in the previous ruling, Judge Torres declined to “take a narrow view of relevance in the context of discovery.”
Is it really a win for Ripple?
The jury is still out on just how helpful the Hinman documents will be for Ripple as it defends itself against charges of securities violations. The SEC has already argued that Hinman’s speech was in his own capacity and didn’t reflect the agency’s view.
In fact, at the start of his speech, Hinman included the standard disclaimer that the speech was expressing “the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.”
In addition, the SEC has previously dismissed the impact that the Hinman documents will have, pointing out that KIK Interactive tried to hang onto the same argument Ripple is making and ultimately failed. A court determined KIK Interactive’s token to be a security and ordered it to pay a $5 million fine.
The Ripple case will be a watershed moment for digital assets in the US and beyond. Should the judge rule in favor of the SEC, it will open up the floodgates to a host of new enforcement actions against digital asset projects whose tokens are deemed as securities. And it’s not just the projects–platforms that offer these tokens will be in violation of securities laws as well and could lead the likes of Coinbase to delist over 90% of the tokens they currently list.
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