TRANSCRIPTION FROM VIDEO:
Hello and Welcome to Legal Briefs and today in the SEC v. Ripple case there was of course the long-awaited hearing about the documents related to the SEC’s internal deliberations on the security status of Ether and XRP and I of course was there for you and this was a doozy of a hearing so of course I am going to tell you about the legal issues, the arguments, who won and of course why it was all important.
Here’s my Tweet from just before the hearing started – just as a tease:
(9) Jeremy Hogan on Twitter: “Get on if you aren’t in! Listen for the magic words “I’ll do an in-camera review.” That’s what we want to hear so keep a picture of a camera in your head at all times. :)” / Twitter
“Listen for the magic words from the Judge “I’ll do an in-camera review.”
We’ll get to that in a second But today unlike our typical video with me just basically talking, today I have arranged something very special: a fellow Youtuber and XRP enthusiast is going to join me on Zoom and we are going to discuss the hearing today together. This is going to be amazing, I am very excited to be doing a joint video – let’s join the videoconference and get this party started.
Thank you so much John Deaton, Bearable Bull, Crypto Eri and of course Matt with the Moon Maserati for helping with that opening. They all agreed to do that on short notice and they were all AMAZING. Also, shout out to the Bearable Bull’s Mom – what a charming lady and she obviously raised a great son.
But in any case, let’s get to the hearing from today because it was a Amazing.
The motion to be ruled on today was Ripple’s motion to get the SEC’s internal documents which show whether XRP and certain other digital assets were securities. In response to the request for those documents, the SEC raised what is called the government deliberative process privilege – or DPP for short.
If I worked for the SEC the first thing I would’ve said is “Judge, you down with DPP?” And then I would be fired.
But let’s take a look at the argument According to the SEC, looking at its brief – Roman Numeral II paragraph A:
“To be protected by the Deliberative Process Privilege, the documents must be predecisional and deliberative. Predecisional documents include recommendations, drafts, proposals and other subjective documents which reflect the personal opinions of the writer rather than the policy of the agency.”
So that is what the SEC is saying as to why it doesn’t have to provide the documents and here is what we haven’t seen yet in the litigation but whenever a privilege is raised you have to produce a privilege log and give it to the other side and here is a sample from a very different type of case:
So the SEC has produced a document like this to Ripple, and this was looked at during the hearing today and on there you can see that for every document that the SEC was withholding it has to list the document with a brief description, the date of the documents, and then you have to specify what exactly the privilege is that you don’t have to give it.
So, having looked at that sample privilege log you can kind of see why it’s difficult for the parties to get into detail about the documents because that’s literally all you know about them and that makes it a difficult hearing to argue for Ripple.
But fortunately for Ripple, attorney Matt Solomon was arguing for Ripple’s side and he was SPOT ON the whole hearing.
The Judge began with a series of VERY pointed questions and I have to hand it to her. Oral argument is really supposed to be to clarify things that are unclear or vague in the pleadings themselves and the Judge had 3 areas she needed clarified but really I will talk mostly about the very first question because it was the only really important and far-reaching question and the question was this:
Mr. Solomon: in your opinion is the standard for aiding and abetting a violation of law (which the individual defendants were charged with) an objective or subjective standard?
At first I was concerned because this judge usually starts questioning the party she is going to rule against but Solomon was apparently ready because he knocked it out the park and his answer was spot on and he cited to Safeco Ins Co of America v. Burr which I am very familiar because it’s really an insurance case and here’s what the U.S. Supreme Court said at the tail end of the ruling:
“The common law has generally understood “recklessness” in the civil liability sphere as conduct violating an objective standard: action entailing “an unjustifiably high risk of harm that is either known or so obvious that it should be known.”
And as we all know, only God is above the U.S. Supreme Court when it comes to the American judiciary and if you were listening, this explains why the attorney for the SEC struggled with answering the same question: “Mr. Tenreiro, is recklessness a subjective or objective standard?
Right away Mr. Tenreiro started talking about something completely different and you know it’s always a bad sign when asked a black and white question by the Judge you have to start with “judge let me just first start off by saying…” Ugh – that never goes well.
But eventually even the SEC did have to admit that its an objective standard. And why is that so critical? Because if the standard was an objective standard – what did Brad Garlinghouse know about whether XRP was a security when he sold it – if that’s all that’s relevant – the SEC’s internal deliberations are 100% COMPLETELY irrelevant. So that’s why it’s key and that is why I breathed a little sigh of relief when the judge didn’t bite on any of the SEC’s argument to the contrary and actually it was when the SEC would not concede this point that I heard the most irritation, maybe even a glint of “polite upsetness” from the judge.
But putting that aside I think it’s safe to say that the judge believed it was an objective standard but the interaction between the Judge and SEC led to the most interesting hypothetical and definitely caught my ear and here’s what I wrote in my notes:
To translate my chicken scratch she said: “What if all the SEC Commissioners were out having lunch and talking about how they are all confused about XRP and other digital assets status as a security or not, that would be relevant.”
And I literally laughed out loud because I think Judge Netburn is watching DAI’s Youtube channel or following James Rule XRP on Twitter or something because that’s exactly what you can see when you go back and look at statements and videos from 2017-2020 – just total confusion on the SEC’s part about what to do with Digital Assets and they are all over Youtube and Twitter. And if its an objective test, and the SEC is confused – how can the Defendants have acted with knowledge of wrongness.
In any case, for me that was the HIGHLIGHT of the hearing because…well, I’ll say it – I swear Judge Netburn is following some of the XRP people on Twitter or maybe even on Youtube. I didn’t think so before but now… I see you Judge Netburn.
Remember to hit the Like and Subscribe button – Your Honor.
But anyways, what this hearing made clear is the that Judge believes that all of these documents are EXTRMELY relevant and I think relevant and important enough to overcome any DPP argument, and that is because of this case which Att’y Solomon briefly pointed out but which is more important than the time it was given during the hearing. Looking at Solomon’s brief at the bottom of page 3:
“If the underlying law was unclear at the time even to the SEC, then the alleged violation could not have been so obvious that the Defendant must have been aware of it.” Citing to the Novak v. kasaks case.
And that is what Solomon is gunning for and that is why the Judge ruled in favor of Ripple and the individual defendants on this motion.
So, what happens from here? First, the SEC will be providing copies of the documents Ripple wants to Ripple – albeit redacted. The Judge made a very strong point that they were to be “lightly” redacted. But the Judge and the Judge alone will get complete and unredacted copies of all the documents.
This is called an In-camera review and in-camera isn’t talking about something with megapixels but is a latin word for “in private” so the Judge will review the complete documents and then the parties will provide legal briefs which argue why each individual document is or is not privileged and then the Judge will issue an Order on each individual document and either order it produced or not.
And based on today, I would say it’s a good bet that she is going to order most of the documents Ripple is asking for PRODUCED.
This hearing has taken 6 months to get to and it’s frustrating when things take this long but keep in mind that this discovery phase is ending in a little over 2 months and it’s during this discovery phase that you plant and grow the food that feed your case.
And as you know “The lazy man does not plow during planting season and at harvest time he looks, and there is nothing.” It’s obvious that Ripple has not been lazy during this litigation.
And by the way, that is a quote from … King Solomon.
Thanks for watching!