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SEC vs. Ripple: Director Hinman – Where Are You?

By July 15, 2021No Comments


Good evening and welcome to this SEC v. Ripple  edition of Legal Briefs. This is attorney Jeremy Hogan and today was the hearing with Judge Netburn as to whether former SEC Director Hinman could be deposed and…

yes, that song means that the Motion to Quash the deposition was denied so Mr. Hinman will be deposed – you bad boy. And today we are going to go through the hearing and explained what happened, why it happened, and what it means for the SEC v. Ripple case – some super interesting things in the hearing and one VERY interesting thing you’ll want to hear – it was much more interesting than I thought it would be.

First off – did anyone else play the drinking game – take a drink every time the SEC lawyer said “Uhmmm..” I sure did… and it didn’t end well for me:

That’s a little inside joke if you were listening to the hearing today.

Welcome back and remember as always do not take what I say as legal advice ALTHOUGH it’s hard to say that when I AM ALWAYS CORRECT and here I am being splendid on video:

And I was correct – Judge Netburn ruled that Director Hinman was indeed a high ranking official and protected from deposition absent exceptional circumstances BUT let me continue:

Sometimes it’s hard to be right all the time and thank you for watching good night.

Just kidding- there is MORE to talk about because we got some iiinteresting insight today.

The legal issue was whether the court was going to allow former SEC Director Hinman to be deposed by Ripple. The relevant law is that High ranking officials are not allowed to be deposed unless there is some “Exceptional Circumstance” to allow it.

As you may know, Former SEC director Hinman made a speech back in 2018 in which he said that in his opinion Ether was not a security and he also spoke with the Ethereum foundation and I think some exchanges about his views on whether Ether was a security.

And why is that important? Because Ripple has pled the Fair Notice defense which puts at issue whether Ripple had Fair Notice that it’s XRP token could be considered a security.

The First interesting thing for me listening to the hearing was that we heard from a new SEC attorney – Ms. Stewart.   I thought she started off really good – very strong. But more interesting was that I did not hear that Attorney Tenreiro was even on the call.  We might have seen a shift to basically new counsel for the SEC – we’ll see But this might be signalling that the Chicago lawyers are running lead now.

In any case, I think Ms. Stewart laid out the SEC position very strong- you can’t have high level SEC officials deposed for every case the SEC is involved otherwise they’d spend their retirement years being deposed day after day and being deposed is like having a proctology exam done for hours, over and over – seriously, this is literally how my clients are after 4 hours of a deposition.

That guy rocks.

In any case, Ms. Stewart was very good until the Judge asked her very first question and I tell you what – it was a curveball question and it was actually what this hearing was ALL about.  And the question was this: Mr. Hinman said  in his affidavit to the motion) that the speech was only his PERSONAL views.

There it is in paragraph 13 of Hinman’s affidavit “ The speech was intended to express my own personal views.”

 So the Judge’s question was – how can a “high level official” protection privilege apply to words he said in his personal opinion only?  That question made me sit up and take notice and I didn’t expect it at all – and neither did the SEC attorney.

But let me get back to why that was THE moment of the hearing because I have to explain something briefly.  This was issue was FULLY briefed in writing and when I saw that the Judge wanted oral argument I thought maybe she wanted to hear more from Ripple about what they hoped to find out from Hinman that wasn’t in his speech already.  But that wasn’t it at all.

What this was all about is that Judge Netburn is very aware that her rulings set precedent and will be referred to and relied on in other cases. And she is also aware, as any good judge is, that she has to make a good record of WHY she ruled a certain way not only for that reason but in case she is appealed on a ruling.  An appeal of her ruling – keep that in mind.

Now the SEC made a big mistake – there was case authority on the point of “Personal” versus “official” views and it had failed to file it in its briefings.  Some judges won’t even let you talk about it if it’s not filed – but judge netburn let her argue it.  It was a case called the Nachios case and  took a look at it and its basically a case that was a  little helpful for the SEC but A LOT hurtful.  Because in the Nachios case although the official eventually won on the privilege issue, the Court allowed him to be deposed FIRST, and then after the questions were asked and objections raised, the parties went back to court and argued the privilege arguments – which is basically what Ripple wants to do in this case.

So, I call this a Judge’s hearing because I think the Judge knew what she was basically going to do already but wanted to make a record for case precedent purposes and also for appeal purposes.  She wanted to lay out that the Speech was extraordinary in that Hinman said it was his own personal view that Ether was not a security and that “Extra-ordinariness” was why she was allowing the deposition to go forward.

But there’s something that jumped out at me that  you might have missed.  Remember, nothing gets by me.  When It became obvious that the Judge was going to allow the deposition to move forward she asked the parties whether it was moving forward on Monday and Ripple said “yes” and the attorney for SEC said she wasn’t sure, that “ We would need to time to evaluate that.”

It was a scheduled deposition, the judge said she was going to allow it to go forward but the SEC will “evaluate” that?  That can mean only thing: absent an  agreement between the parties, the SEC intends to appeal the ruling allowing the deposition to go forward. And it’s almost NEVER done  – you have no idea rare a move that would be. First, the standard is almost impossible to meet – the Order allowing the deposition would have to “clearly erroneous” and the Judge who would make that decision is the District Court Judge – Judge Torres – who is working with Judge Netburn on this case and Probably even knew what Judge Netburn was going to do with this issue.

SO, what I’m saying is a little conspiracy theorist-ish, which I am not by nature, but even thinking about appealing this Order suggests to me that the SEC is desperate for this Deposition to NOT go forward.  Desperate.  Why exactly they are desperate I do not know. But there is SOMETHING there that is not just “normal” bad for them but really really bad for them.

But here’s the caveat to that.  Ripple probably doesn’t know exactly what the SEC is hiding.  Maybe they do but..after today I don’t think so.  And the bad news is that Judge Netburn is going to be very restrictive on the scope of what Ripple can ask about.  Is she was unusually clear at the end of the hearing, when she was getting a little pissed off at everyone, that what makes the case “Exceptional” is the speech and MAYBE what led up to the speech.

But what I’m saying is that there is something to be unearthed and the question is, will Ripple be able to unearth it?  I don’t know the answer to that but what I do know is that this fight is far from over. We’ll be seeing this issue in front of the Judge again – and soon. Everyone know now that there’s too much riding on it.

That’s it for me – thanks for watching. Remember to pat yourself on the back today – you are doing SOMETHING good. Keep it up.

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