Tuesday, June 22, 2021
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SEC loses the fight to access Ripple legal memos

  • A New York judge has denied the SEC’s motion to compel RIpple to produce all memos discussing XRP sales with its legal team.
  • The judge instead chose to focus on the SEC as Ripple has been doing, including whether the actions it took, or didn’t, confused the market participants like Ripple.

The U.S Securities and Exchange Commission has been dealt a fresh blow in its ongoing legal battle against San Francisco-based blockchain payments company Ripple. A New York judge has ruled against the SEC’s motion seeking to compel RIpple to produce memos discussing the sale of XRP with its lawyers. Through the memos, the SEC wanted to prove that Ripple has been well aware that XRPs could be a security from the start but chose to ignore the warnings.

Judge Sarah Netburn of the District Court for the Southern District of New York, who has been presiding over the legal showdown, delivered the verdict yesterday, May 30. While it’s abnormal for U.S judges to work on Sundays. Attorney Jeremy Hogan noted, “I think Judge Netburn promised to get the ruling done quickly and got behind so she kept her word and worked over the weekend!”

In her ruling, Judge Netburn referred to the attorney-client privilege which is meant “to encourage full and frank communication between attorneys  and their clients and thereby promote broader public interests in the observance of law and administration of justice.”

This privilege can be waived in certain situations. One of them is when the defendant claims that his actions were legal. In such a case, the defendant “puts his own knowledge of the law and the basis for [his]understanding of what the law required in issue, including conversations with counsel.”

However, in the Ripple case, the privilege will stand, the judge ruled.

The ‘Fair Notice’ battle intensifies

One of the key issues in the SEC vs. Ripple legal showdown centers on fair notice. Ripple claims that the SEC didn’t issue fair notice that the company was committing securities violations. The firm backs its defense by pointing to the eight years it took before the SEC filed a case against it.

Furthermore, the U.S Justice Department and FinCEN had declared XRP a convertible virtual currency. And to further build on its defense, Ripple noted that William Hinman, the former SEC Director of Corporate Finance declared that Ether and BTC were not securities. This further “confused the market.”

In so doing, Ripple has changed the focus of the case to now center on the SEC’s actions, inactions and state of mind.

Judge Netburn noted that she was not taking any position on whether Ripple’s pleaded defense is cognizable. “I reach only the limited question of whether Ripple put its subjective state of mind or advice of counsel at issue merely by raising the defense, thus waiving its privilege. I conclude it did not,” she added.

She ruled:

Accordingly, the SEC’s motion is DENIED. If, at some later date, Ripple raises its good faith beliefs or relies upon its privileged communications in support of its fair notice defense, the plaintiff may renew its application to the Court.

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