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SEC vs. Ripple: New Possible Settlement Timeframe, and Where to FOCUS

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TRANSCRIPTION OF VIDEO:

My dad is such a good sport for doing that.  I love you Dad. Happy father’s Day.

So, I know that it feels like this SEC v. Ripple case is taking forever especially since the Judge just extended discovery out 60 more day.  But don’t worry – it won’t last until 2050.  Today I am going to bring you up to date on what is going on in the case, what to FOCUS on and pay attention to, and then my new settlement or final judgment timeline estimate.

First, remember that in any litigation there will be defeats. If you never lost a motion or hearing, you are not trying hard enough.  Lawsuits are emotional roller coasters and lawyers can have difficulty dealing with it.  Here’s a video the Florida bar association sends us every year that helps:

Feel better?  Good.  Me too.

So, let’s start with the big one from this last week.  The SEC moved for a 60 day extension to complete discovery.  Discovery was supposed to be over on August 16, 2021 and 60 days puts it out to October 16. The SEC raised a couple of issues in its motion:

There you can see reasons a, b, c, d and e.  But really the reason it was granted is reason C :  “the parties are attempting to resolve a number of significant discovery disputes and the SECs request to depose six additional witnesses is still pending”

The court looked at all the things going on and thought there were just too many pending motions to reasonably get them heard and discovery completed with less than a month to go. I knew this would happen, I was just hoping that the Judge would say “okay, you get 30 more days and if you STILL need more time, file another motion.” But, that’s not what happened.

And I will tell you the SEC’s motion didn’t surprise me one bit.  Time is NOT on Ripple’s side and every time the SEC says they want this over quickly also, it is lying.  It wants to WIN and every week that goes by helps it. Ripple said as much in its reply to the motion for extension of time:

“Delay in this litigation poses an existential threat to Ripple’s business in the United States.” (pg.1)

Existential seems a little dramatic?  I hope so, because I don’t see any reason why the SEC is going to be in any rush on this case.  The more time goes by the better the SEC’s settlement position because the more pain for Ripple.  I see it every day in my firm as most of my clients are fighting large insurance companies and there’s NOTHING they like better than to kill my clients with time.  It’s a very common tactic.

AND, believe it or not, this case, even with the 60 day delay, is moving fast for a case this size.  Don’t believe me?  Here’s a scheduling Order I received on a new case I just filed. 

See the discovery cut off on my case?  It’s 450 days from now! 

That’s a year and 3 months to finish discovery.  Even with the 60 day extension the Judge is keeping discovery in the Ripple case,  a much much more complex case, to under 10 months. So, you better call Saul

And he would tell you, 10 months to close discovery in a case like this is actually pretty fast.

So, with that being said, there were a lot of motions filed this last week or so and most of them relate to one of the major issues in this case.  And There are ONLY 3 major issues in this case:

  1. Was XRP sold as a security?  The main issue
  2. Was Ripple provided Fair Notice of a violation? A big big issue
  3. Does the SEC have jurisdiction over the sales? A smaller but major issue.

So look at this motion filed by Garlinghouse and Larsen last week.

“Motion for issuance of Letters of Request for International Judicial Assistance”

What’s that all about? Simple, they can’t go to a foreign country and demand documents from Binance in Malta for example – the U.S. courts have no power there, so they have to go through a process put in place by international treaties – the Hague Convention I believe,e in order to subpoena documents. And they are searching for records from crypto exchanges to show that their sales were not made to US Citizens or companies.  This request goes to “jurisdiction” and its’ an issue but not a major issue.

Legally, the more important briefs this last week were the Sur-reply from Ripple and  the Sur-sur Reply from the SEC because those deal directly with the Fair Notice Defense. Let me explain those briefly.

When a motion is filed by a party, there is a response from the other side and then the party that filed the motion gets to respond in a limited way to the arguments the responder made. So, it’s like if my wife says I’m lazy, then I can respond by saying I’m not lazy – you just don’t see all the work I do, and then she gets to get the last word in (like she always does) that she does see all the work I do but I’m still lazy.  The one who starts the argument gets the last word in Court.  BUT, the last word must be limited to arguments raised by the responder and CANNOT raise new issues.  For example, my wife doesn’t get the last word and then get to throw in “your lazy and your Mom agrees with me”.  That’s not fair.

And the SEC here is the wife and what happened is that it filed a Motion to Strike the Fair Notice defense, Ripple replied to the arguments raised, and then the SEC brought up NEW things in its response.  That’s technically a no-no. And because there was a new argument raised, Ripple gets to respond to that new argument and THAT my friends is called a Sur-Reply.

And what was the new argument? Let’s look at Ripple’s Sur-Reply:

“”The SEC asserts for the first time – that Ripple’s Fair Notice defense “fails” because “prior to suing Ripple, the SEC had already brought more than seventy cases that subjected other digital assets to securities laws”

Fair enough (no pun intended) but the problem is that the SEC never really raised this argument in it’s initial Motion. Now, the fact that it had sued other companies is RELEVANT and could be persuasive I think and someone realized it had been left out of the very important Motion and that is pretty bad – pretty sloppy. Which surprises me because the legal work by the SEC up to this point has been pretty good so far – not perfect – but good.

So then, look at what the SEC tries to do.  It knows it can’t now in its reply bring up the other cases – it messed that up, so it finds this report – the “Cornerstone Report” which  lists all of its cases against other crypto-currencies and it asks the court to take judicial notice of it.  It tries to back-door all of the 70 cases in through a report that was published after its initial motion.

This also doesn’t work for another reason.  Something can be “judicially noticed” into evidence if there can be no dispute about it.  For example, Court, please take judicial notice that June 16, 2021 was a Wednesday.  Take judicial notice that Hawaii is in the Pacific Ocean.  If there is ANY dispute, the court can’t take judicial notice of it and it doesn’t come in to evidence.  That’s why, when Ripple does dispute the Cornerstone Report, it highlights it.

Right there.

And There.

So, because there is a factual dispute, there can be no judicial notice. which leads us to my favorite line from all of the pleadings so far:

“The SEC is triply wrong: the Court may not properly take judicial notice of the Cornerstone Report; the facts it contains are not undisputed; and if the Court were to consider the cases cited in the report, they support Ripple, not the SEC.”

So the Ripple lawyer gets to say “triply” wrong.  IS that even a word?

But I would just ask the Court to take judicial notice of Madagascar and play this…

Africa?  That. Ain’t. gonna. Fly.    Your Honor.

In any case, why did I go into a lot of detail on this Sur-reply?  Because it goes to the Fair notice defense.  When you see these motions come out in the next couple weeks, I would suggest you NOT get too caught up in anything that doesn’t have to do with whether XRP is a security or the Fair Notice defense. There are some minor battles going on and there are some big ones. Don’t read too much into the small battles – those will be won or lost but all that really matter are the two big ones.

Which brings me to my final topic.  When is the case likely to be settled now and if not settled, when will it be decided?

The judge pushing discovery back 60 days changes the timeframes.  Obviously, no settlement happened in May and I truly believe that new Chairman Gensler is not going to get involved.  So, I go back to my initial idea that no settlement will happen until the close of discovery.  Could it settle before then?  Yes, I just don’t think it’s likely. So, any settlement is likely to be after at least the close of fact discovery and that is now early September and even more likely to be after October 16.

And if it doesn’t settle? Then I believe the two main issues will be decided by Judge Torres at summary judgment. Looking at the summary judgment rule briefly,

You an see there that motions for summary judgment must be filed within 30 days of the close of discovery so that puts the parties competing motions for summary judgment due no later than 30 days after the close of all discovery And that is November 16 for us.  But then when you add in responses and responses to responses and then maybe Sur-replies…probably not but you never know –  I don’t see the case being decided at summary judgment until early 2022 – maybe January.

For all you young guys and girls out there – be patient.  Remember, patience is not an event or occurrence but an attitude.  60 days is but the blink of an eye to the rock.   Be the rock.

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