In June 2018, then-Securities and Exchange Commission (SEC) official William Hinman said that digital assets like Ether (ETH) and Bitcoin (BTC) weren’t securities. Ripple argues that Hinman’s speech applies to XRP, too. But does it? Fox correspondents Eleanor Terrett and Charlie Gasparino explain that the answer could determine the fate of Ripple’s legal case.
That case, of course, is the lawsuit brought in December 2020 by the SEC against the blockchain-based payments network. The Commission alleges that Ripple violated federal securities laws by selling more than $1.3 billion worth of XRP to investors without registering them as securities.
Ripple has denied the SEC’s allegations, arguing that XRP is not a security and that selling it was compliant and not materially different from sales of ETH and BTC.
On Tuesday, June 7, federal Judge Sarah Netburn – who on April 11 denied the SEC’s motion for partial reconsideration of the court’s order- legally forcing the US regulator to produce documents and emails related to Hinman’s June 14, 2018 speech – held an in-person conference call to discuss the release of the documents.
Ripple officials believe that the documents are critical to Ripple’s case, as they will reveal disagreement among the SEC’s top officials about whether or not XRP is a security. This would undermine the SEC’s position and show that the agency is picking winners and losers in the trillion-dollar crypto space.
The judge has yet to make a decision on the matter, but it is clear that the release of these documents could have a major impact on the case.
Meanwhile, John Deaton, a class action attorney who represents over 67,000 XRP holders who have filed their own suit against the SEC, shared a thread about the conference call between the SEC and Ripple- saying that Judge Netburn kicked off the call by reminding both parties of the purpose of the hearing. She then proceeded to ask the SEC to provide clarity on “what legal advice Director Hinman received and for what purpose it was given.”
The agency’s response was that Hinman “needed to speak with attorneys who were versed in the aspects of securities laws with respect to digital assets” to be sure his speech “wouldn’t conflict” with those laws.”
“So he wasn’t asking for legal advice to educate himself on legal standards, but to be sure he wasn’t inconsistent?,” the judge asked. To which the SEC responded with a ‘yes’.
At this point Netburn reminds the SEC that Hinman’s speech was his own personal views and not the views of the SEC.
“Do you stand by that statement today?,” she asked the SEC. The agency argued that even if it was his personal views, “he still sought legal counsel about the legal issues he encountered in that speech.”
Netburn then says she “gets “hung up” on the fact that the SEC’s legal staff works for the SEC – the agency is the client. They use that counsel to make DECISIONS under the law.”
“The SEC has distanced itself from Mr. Hinman’s speech … I’m having a hard time reconciling atty-client privilege with something that the SEC said is not official guidance, ” Netburn said.
The thing is, when you have an entity that is both the umpire and a player in the game, it calls into question whether or not the outcome of the game is fair. If the SEC’s lawyers are advocating for certain actions that benefit the SEC, it creates a conflict of interest. And if the SEC is making decisions based on what’s best for the SEC, rather than what’s best for investors, that’s a problem.
Deaton says that the judge appears to be implying that the SEC’s “arguments are illogical, citing a “tension” in its position and reasoning….”
Netburn says she then gets "hung up" on the fact that the SEC's legal staff works for the SEC – the agency is the client. They use that counsel to make DECISIONS under the law. "The SEC has distanced itself from Mr. Hinman's speech … I'm having a hard time …"
— CryptoLaw (@CryptoLawUS) June 7, 2022
Commenting on the hearing, attorney Jeremy Hogan said that you don’t need a law degree to know how it went.
“it’s even worse than it sounded,” he noted.
Ripple v. SEC court hearing:
You don't need a law degree to know how that court hearing went. :)
But it's even worse than it sounded. The SEC took a big step backwards on a key issue. Video tonight!
— Jeremy Hogan (@attorneyjeremy1) June 7, 2022
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