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SEC vs. Ripple: Fair Notice for the Win!

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TRANSCRIPTION OF VIDEO:

Hello and welcome to Legal Briefs, this is Attorney Jeremy Hogan and boy did the SEV v. Ripple plot turn these last couple days.

The saying is that “the Wheels of Justice turn slowly, but grind exceedingly fine” and the Ripple case is sure starting to grind out some nice flour for the defense of this case.

Bread anyone?

Welcome back and today the individual defendants Garlinghouse and Larsen filed a letter from SEC Commissioners Pierce and Roisman in connection with the settlement of a COMPLETELY different case in which letter the Commissioners opined on the state of regulatory “clarity” in the U.S. for crypto currencies.

Ok, so what does that have to do with the Ripple lawsuit?  Here – allow me to play a video for you – to summarize:

Watch this video to end and see if you can see who is who. Hint: Ripple is Luke Skywalker.

Okay, let’s see what is going on here and don’t worry I will orient you in time and space and you too will know.

SO, back in May I did a video titled “It’s all about the Fair Notice Defense” and I guess I was right but I didn’t understand at the time HOW right. There I was :

I talked so fast back then – I’m getting old.

In any case, recall that there are two issues in the SEC v. Ripple case: first, whether Ripple sold an unregistered security XRP and second, even IF Ripple sold XRP as a security, whether it had Fair Notice that it was violating the law. If the Court says that XRP is not a security – Ripple wins.  If the Court rules that Ripple did NOT have Fair Notice, Ripple wins.

But what many think of as the “Second” issue in the case – the Fair Notice defense has this week especially come to the forefront.

We just got through with whether the deposition of former SEC Director Hinman would take place with the result being that yes, he will be deposed on July 27 with certain restrictions on what can be asked. I expect that sometime this week there will be another hearing with Judge Netburn on the issue of what he has to answer. Stay Tuned.

Hinman’s testimony will go primarily to the Fair Notice defense.  In his speech Mr. Hinman said that Ethereum and the Ether token was not a security and certainly the questioning of Mr. Hiinman will touch on why he said that and who he said it to and how much he was PAID to say that by…

Sorry about that everyone.  Just had to take care of some business to get the channel back up.

In any case, moving on from Mr. Hinman look at what was filed today  – it is supplemental authority that “supports the Individual Defendant’s pending motions to dismiss the First Amended Complaint.”

Now this supplemental authority was filed on behalf of the individuals – Brad Garlinghouse and Chris Larsen – not for Ripple. Remember that they filed a Motion to Dismiss the lawsuit against them altogether, something Ripple did NOT do, and their Motion to Dismiss has NOT been ruled on yet although it HAS been briefed so in theory the judge can rule on it at any time so that’s why they moved on this letter so quick and got it in front of the court.

The letter is from SEC Commissioners Pierce and Roissman and I’ll tell you what the letter says in a minute but first recognize that we are not talking about deposing Pierce and Roisman but only submitting a letter by them and obviously as we know from the fight about deposing former SEC guy Hinman we know that deposing Pierce and Roisman would be very very very difficult. Which means impossible.

SO instead we see that the individual defendants instead ask the court to take “Judicial Notice” of the letter. Judicial Notice is way of getting evidence in front of a judge without having to depose people and you can use Federal Rule 201 judicial notice to get things into evidence when it’s attached to a lawsuit – as they say in the letter:

“Courts routinely take judicial notice of settlements with government and other governmental records…”

And that is how the letter is going to get in front of the Judge in this case and also the Ripple case.  And it’s relevant to both, boy is it relevant, first for the individual defendants because the standard in that case is that the SEC has to prove that

“the Individual Defendants knew or recklessly disregarded that Ripple’s offerings and sales of XRP required registration as securities and that those transactions were improper.”

And that legal standard is similar to what Ripple has to prove in its Fair Notice defense which is its Fourth Affirmative Defense and here it is:

“Ripple did not have, and Plaintiff failed to provide, fair notice that its conduct was in violation of law, in contravention of Ripple’s due process rights.”

Now, why hasn’t Ripple filed this letter also?  Because Ripple and the individuals are in different procedural places. Ripple is going for the big win – summary judgment which will provide case precedent for it and all other crypto currencies.  The individuals are just trying to get out fast.  But by law you cannot file for summary judgment or at least have it heard, until discovery is complete and we have another couple months before discovery is closed in the Ripple case.  But this letter WILL be filed in the Ripple case trust me on that and that is because this letter is full of absolute gems for Ripple and here’s the letter :

It was written July 14. But we don’t have to read the whole thing because Super-lawyer Matt Solomon has pulled out   all the juicy pieces and put it right in front of the Judge – let’s take a look:

Let’s focus on the parts that attorney  Solomon helpfully  bolded.

Commissioners Peirce and Roisman observed in their letter that:

“The only certainty we see is that people have questions about how to comply with the applicable rules and regulations.”  People being market participants.

“There is a decided LACK of clarity for market participants around the application of the securities laws to digital assets and their trading.”

“Although the commission has provided some guidance, the large number of factors cut against the clarity the guidance was intended to offer.”

“People can study the specific cases but “applying those clues to the facts of a completely different token offering does not necessarily produce clear answers.”

In short, we know folks have questions and confusion persists in the marketplace..”

Can you say Boom?

I tried to pplay you Boom by Gucci Mane but got copyright violated – sorry.

But Oh wow.  What a blessing from the heavens this letter is for Ripple.  It’s sweet heavenly Fair Notice nectar of the Gods.

Notice how the letter and the excerpts are written with the focus on third parties “ people” and the “marketplace” – that is exactly what you were praying for if you were Ripple because of the course the only thing the SEC can say in response to this letter is “I’ts  just their personal opinion and has no legal effect.” Which is partially correct but it’s more than just personal opinion because implied in the statements are understandings from discussions with others in the crypto field that THEY DON”T UNDERSTAND what is a security and what is not in the crypto space.

And on top of that, how difficult is it for an SEC lawyer to argue against 2 out of 5 of the SEC Commissioners that run his entire Commission that the marketplace, including Ripple, had Fair Notice back in 2014, 15 16 and 2017 when 2 of the SEC Commissioners have just stated on the record that there STILL isn’t any Fair Notice here in July 2021?

I mean, you can litigate a hundred cases and never get a gift like this letter and I say it’s a gift from the Heavens because you know that the Commissioners could never comment on pending litigation. And you know that Ripple could never get the Judge to make them sit for deposition, and you know that with Judicial Notice this letter had to be attached to another case like the case that just settled so that WAS a case the COmmiissioners COULD comment on and they took that opportunity to put out thoughts on the confusion that exists in the marketplace.

The stars just aligned on this one my friends.  I mean, it was almost like the Commissioners took the opportunity presented to specifically HELP Ripple… like…well,

Let me just remind you of a saying by John Stuart Mill:

“The only thing necessary for the triumph of evil is for good men to do nothing.”

And instead of evil – think SEC and instead of “good men” think Good Commissioners.  AM I being clear here?

And if you are in the crypto industry and believe in it, never forget how brave it was for Commissioner Peirce and Rosman to stick to their convictions no matter its effect on them and to state what they believe to be the truth.

Respect to them and to telling the truth – it’s what makes Justice grind fine.

Thanks for watching.

Jeremy Hogan
Jeremy Hogan
Attorney Jeremy Hogan is a partner at Hogan & Hogan.