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US judge rules against SEC’s contradicting defense over Hinman speech in Ripple case

A U.S. judge has ruled against the Securities and Exchange Commission (SEC) in its defense of the infamous Bill Hinman speech, claiming that the regulator’s legal arguments were contradicting and hypocritical.

It’s been 18 months since Jay Clayton, the then-SEC chair, filed a securities violation lawsuit against Ripple. The lawsuit has dragged on in court with the latest battleground being the 2018 speech that Hinman, who was the director of the Division of Corporate Finance at the time, made. In that speech, he claimed that Ether isn’t a security. Ripple has then posed the question in court—if Ether isn’t a security, then why is XRP?

The SEC has argued against the speech being considered in the lawsuit. At first, it claimed that Hinman was making the speech in a personal capacity. However, it would later come to claim that he had received guidance and insight from the regulator’s legal team, and it’s this contradiction has given Ripple an upper hand in court.

In a ruling this week, U.S. Magistrate Judge Sarah Netburn denied the SEC’s motion to maintain attorney-client privilege regarding the Hinman speech.

“The hypocrisy in arguing to the Court, on the one hand, that the Speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his Speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law,” it stated.

The decision wasn’t about whether Hinman made the speech personally or professionally. Judge Netburn focused on the fact that Hinman had received feedback and input from SEC employees, specifically regarding whether the speech was in line with the SEC’s messaging.

“The law is settled that policy advice—like whether it is a good idea or a bad idea to make a particular public statement as a public figure—or communication advice—like whether a statement is on-message with the agency’s position—is not protected legal advice, even when it is offered by lawyers,” Netburn notes in her ruling.

The Ripple vs. SEC lawsuit is likely to drag on for several months, and if the SEC does win and a court rules that XRP is a security, the implications will be immense. Several other projects that have sold their tokens to investors would be on the SEC’s radar, giving the regulator the ability to protect investors better.

For Ripple, an unfavorable ruling could mean relocation of its operations overseas. CEO Brad Garlinghouse recently revealed that he’s ready to move the company overseas if he loses in court.

“…we will move to another jurisdiction if we lose the case in the United States. We still have an immense business to build. Why do it in a regulatory jurisdiction that’s not going to be friendly towards us?”

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups from BitMEX to BinanceBitcoin.comBlockstreamShapeShiftCoinbaseRipple,
EthereumFTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

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