Yesterday’s victory of Ripple vs. the SEC has a more far-reaching implication

  • Ripple gains access to external and partially internal SEC documents regarding the classification of Bitcoin and Ethereum as non-securities. 
  • With yesterday’s ruling, the court sends two signals in favor of Ripple: for a possible early resolution of the case and for Ripple’s fair notice defense. 

In the words of Brad Garlinghouse, “Today was a good day” for Ripple. As CNF reported, a 1.5-hour discovery hearing was held yesterday in the lawsuit with the U.S. Securities and Exchange Commission (SEC) to decide the motion on whether Ripple should be granted access to the SEC’s internal and external documents on the classification of Bitcoin and Ethereum.

Ripple celebrated a “big win” as the judge granted the motion, and the SEC is now forced to disclose documents about external communications and formal internal letters (not emails, or the like). However, as attorney Jeremy Hogan explored in a new video, there was much more at stake than just the release of the BTC and ETH documents.

Ripple’s “fair notice” defense also played a central role during yesterday’s hearing. The principle of “fair notice” states that authorities should give regulated parties fair warning of conduct that a regulation prohibits or requires something to be done. Ripple’s defense centers on the SEC’s failure to provide adequate notice that the sale of XRP was prohibited.

The SEC filed a motion to dismiss Ripple’s fair notice defense on March 09. According to the regulator, it was not required to issue warnings about violations amid a non-public investigation. A dismissal of this defense would be a big blow for Ripple, as CNF reported.

Important signals in favor of Ripple

Judge Netburn turned to the SEC first during yesterday’s hearing and asked 5 questions, and with the first question, Judge Netburn also gave the SEC the crucial question for the motion. As Hogan elicited, however, the SEC “blew it.”

Her very first question pointed out what I now think was a big mistake of the SEC, suing Brad Garlinghouse and Chris Larsen personally. Her first question was: Did any of the cases you cite, were there any individuals sued? And the SEC’s response was an honest ‘No’. And here’s the thing. The judge already knew that […] and this was the SEC’s opportunity to change her mind. But I think the SEC attorney kind of blew it.

Instead, the SEC attorney followed up by addressing why XRP is different from Bitcoin and Ethereum. As Hogan noted, by that point, at the 15-minute mark, the hearing had run its course because Judge Netburn had already made an inner decision on Ripple’s motion.

Meanwhile, yesterday’s victory sends two important signals for Ripple. The first important aspect of Ripple’s victory yesterday was that the SEC will have to create a so-called privilege log of documents. It’s a summary of documents that the SEC has. Ripple can use this to find additional references and more information. Hogan concluded about what it means for the litigation going forward:

Now if there is a smoking gun type of document out there, in the next 30 days is when the SEC will look to get out of this litigation. This also conforms with Gensler getting on board, so if that is going to happen, look for sometime in mid-May.

Second, Judge Netburn sent a clear signal in favor of Ripple regarding the fair notice defense. According to Hogan, the court will not order the SEC to spend “hundreds of hours going through tens of thousands of documents” relevant only to Ripple’s fair notice defense when it knows the entire defense will be thrown out next month. Hogan said.

I would be shocked that the judge would order the production of all these documents if the court is going to rule in favor of the SEC next month on its motion to dismiss Ripple’s fair notice defense.

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