| In Ripple
SEC Case Argument Held on Withheld Notes
Behind Commish Hinman Speech
By Matthew
Russell Lee, Patreon Podcast
BBC
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SDNY COURTHOUSE,
June 7 – In SEC v. Ripple Labs
Inc. et al., a discovery
hearing was held on April 30
before U.S. District Court for
the Southern District of New
York Magistrate Judge Netburn.
Inner City Press live
tweeted it, see below,
then put underlying emails on
Patreon here.
On May 21, after
an SEC submission now on
Patreon here,
podcast here,
Judge Netburn held another
conference, this time on
whether the SEC can get access
to legal advise to Ripple.
Inner City Press fought to
cover it and did, live
tweeting it here
and below.
On May 31, 2022
Magistrate Judge Sarah Netburn
set a conference: "ORDER: A
conference is scheduled for
Tuesday, June 07, 2022, at
3:00 p.m. to discuss the SEC's
renewed assertion of
attorney-client privilege as
to internal documents related
to then-Director Hinmans June
14, 2018 speech."
On June 7, Inner
City Press covered the
argument (Judge Netburn will
rule later). Inner City Press,
which put on of the
defendants' discovery requests
about Howey on Patreon here),
live tweeted June 7 here:
Judge Netburn:
Sorry we're starting a half
hour late. Our supply chain
issue here is court reporters.
We had to wait our turn. We
are here on the letter brief
by the SEC seeking to withhold
the Bill Hinman
documents...Let's start with
the SEC.
SEC: Director
Hinman sought legal advice on
the application of the
securities law to digital
assets for his speech. The
speech was very legal...
Judge Netburn:
About the Howey factors? But
didn't the SEC later say his
speech was not on behalf of
the SEC?
SEC's
lawyer: If if his speech
turned out to be his personal
views, as the court says, it's
still covered by attorney -
client privilege. Judge
Netburn: For SEC lawyers, the
SEC is the client. So it was
for the purpose of advising
the agency.
Judge Netburn:
The purpose of the attorney
client privilege is, here, for
the agency to be informed
about the law. But the SEC has
distanced itself from Director
Hinman's speech. Your letter
repeated says the advice was
for "developing" the speech...
SEC's lawyer:
This was a speech by Director
Bill Hinman in his capacity as
head of CorpFin. Who is the
client here --
Judge
Netburn: But that's different
from what you said a year ago.
Then, you said he wasn't
speaking on behalf of these
division [of the SEC]
SEC's
lawyer: The issue is, did he
seek legal counsel from SEC
lawyers? He did. He was the
client. It was a Yahoo forum
for crypto. Director Hinman
addressed legal issues,
concerning Howie, and how the
security laws apply to digital
assets.
Judge Netburn:
I'm familiar with the law
here. The problem is
reconciling what the SEC said
a year ago, when we talked
about this deposition, &
now- when you're embracing the
speech, to cloak the legal
advice. We're speaking 2 ways,
depending how it serves the
SEC
Judge
Netburn: If we were to pull up
the transcript of his speech,
could you tell me what parts
were his personal view, and
which represented the SEC?
SEC's lawyer:
Even if it's all personal
views, it's still legal advise
from SEC counsel in his
CorpFin capacity
Defense counsel:
On our motion to compel, the
SEC said one thing - then
later they said "the staff was
deliberating on what the
speech should say," so it was
protected. After the NRDC
decision, they said it was
part of SEC "messaging."
Defense counsel:
What you were not hearing at
the time was that Director
Hinman was getting legal
advice - because it wasn't
convenient for the SEC to say
that at the time. The current
director of the SEC has said
he is not bound by Director
Hinman's speech...
Defense counsel:
Sure he used the word "Howey"
in the speech. But is there
evidence that the predominant
purpose was legal advice? No.
Judge Netburn:
The SEC previously said this
was not relevant. SEC's
lawyer: We still say that. We
have an objective standard.
Look at 273-4 of his
deposition, he said he
believed this may have been
legal advice on offers and
sales of digital assets
Defense lawyer:
Director Hinman didn't
recollect one way or the other
if this was legal advice...
The SEC wants to have it both
ways here. We don't relish
pointing it out. But we have
people who have been sued
here, their livelihoods are on
the line.
Judge
Netburn: Thank you everybody.
I'm looking at all the
documents and I'll get to my
ruling as soon as I am able.
Adjourned.
Watch this site.
Back on October
4, a pending motion to
interview by XRP holders
including James Deaton, James
Lamonte, Tyler Lamonte, Mya
Lamonte, Mitchell McKenna and
others has been denied by
Judge Netburn. She found that
they "do not have access to
the information that Movants
have" and "permissive
intervention in SEC
enforcement actions is
disfavored." They can,
however, function as Amici
Curiae or friends of the
court. Full order online.
On September 3,
the SEC opposed Ripple's
motion to compel the
production of details of the
trading of SEC employees and
their family members. The SEC
argues that its policy states
that even ethically cleared
transactions do not imply that
what is bought is legal.
On September 21,
Judge Netburn ruled: "ORDER:
Defendants' request for
documents reflecting the SEC's
trading preclearance decisions
with respect to SEC employees'
transactions in bitcoin,
ether, or XRP, and annual
certifications concerning SEC
employees' XRP holdings is
DENIED. The SEC is directed to
provide Defendants any
documentation supporting SEC
counsel's statement during the
August 25, 2021 meet and
confer that, after the formal
order of investigation was
issued as to Ripple on March
9, 2019, SEC employees could
no longer trade XRP. (Signed
by Magistrate Judge Sarah
Netburn on 9/21/2021)" Full
order on Patreon here.
Watch this site.
On August 31,
Judge Netburn held another
proceeding, and agreed to
review documents in camera as
to which the SEC asserts
deliberative process
privilege. Inner City Press
live tweeted it, here
and below, and now publishes
from the case an email
involving Tenreiro and others
saying
"Thanks for your
email. We did not agree to
produce any DAEO list but did
agree to look into your
question regarding the
presence of BTC, ETH, or XRP
on such a list and to provide
any additional SEC internal
trading policies from 2013-18.
This email addresses your
questions re the DAEO list and
we will produce a small number
of additional policies this
week. Our Ethics Office has a
“Prohibited Holdings” list
pertaining to securities that
fall within 5 C.F.R.
4401.102(c)(1). BTC, ETH, and
XRP have never appeared on
this list." On Patreon here.
August 31 thread:
Defense lawyer: We have been
put through the ringer on
discovery. But now the SEC is
asserting deliberative
privilege in a grossly
overbroad way. On that basis
alone, your Honor is empowered
to order disclosure of all of
these documents.
SEC's Jorge
Tenreiro: No outsider would
have knowledge of SEC internal
deliberations. From our
perspective, the case from the
DC Circuit means knowledge of
the underlying facts. A judge
in this district adopted it
[He does not name the judge]
Now Tenreiro does
name an SDNY judge, says Judge
Hellerstein denied discovery,
external and internal, into
the SEC. Judge Netburn: Is it
the SEC's position that to
determine if Mr Garlinghouse
was reckless, you'll look at
what was out in the public?
Tenreiro: He can
say, I thought it was not a
security. Judge Netburn: But
that's a subjective test. To
see if it was objectively
reasonable, they are saying
you have to see what the SEC
Commissioners were saying at
lunch.
SEC's
Tenreiro: The law is what the
law is. It doesn't matter what
SEC staff think or say inside
the SEC if the public is never
told it. The deliberative
process privilege protects
this.
SEC's Tenreiro:
They're saying, We're a unique
asset - but we have a right to
see everything said inside the
SEC about other assets, this
expanding segment of our
economy. Disclosure would harm
the quality of our internal
dialogue, contrary to the NLRB
case.
Judge
Netburn: So we're saying the
privilege applies to a whole
host of deliberations. But
does the Court need to know
the moment in time that the
deliberations have ceased? Can
there be perpetual
deliberation on these complex
issues?
Judge Netburn:
It's my inclination to conduct
an in-camera review, as
proposed by the defendants.
SEC's Tenreiro: There's a body
of case law saying the
privilege logs can be
corrected and you need to
consider prejudice to the
privilege holder.
SEC's Tenreiro:
Someone unmuted their line...
I'm troubled by the request in
Appendix A - they want
conversations with other
parties, and notes. Disclosing
these would undermine our
ability to gather information.
The professor is on the
pay-roll. There's a Senator
SEC's
Tenreiro: Ann Walworth (sp)
works in terrorism finance --
Judge Netburn:
I'm proposing that I review
the documents. I may find them
too far afield to be subject
to discovery. But your
privilege is a qualified
privilege, unlike the attorney
/ client privilege
Judge
Netburn: I'd like the
documents and a letter brief
from the SEC, filed on the
public record with redactions
as limited as possible, a
response (no reply needed),
then I'll rule
Judge
Netburn: Mr. Tenreiro, when
would you like to file your
letter brief? I'd like 10
pages single spaced, or 20
pages double. SEC's Tenreiro:
2 weeks. Defense: 2 week after
that for the response. Judge
Netburn: So September 28. Send
me the documents in a binder
Defense:
The public has a right to know
what's in the SEC notes.
[Inner City Press agrees with
that.]
Adjourned
On July 8,
the SEC asked Magistrate Judge
Netburn to quash Ripple's
subpoena to depose William H.
Hinman, former director of the
SEC's Division of Corporate
Finance. Inner City Press
previously filmed
pro-XRP picket on Lexington
Avenue on this topic, and
published the SEC's opposition
on Patreon, here.
Now on August 26,
Magistrate Judge Netburn has
extended time for depositions,
and expert discovery: "ORDER
granting [312] Letter Motion
for Extension of Time. The
parties' request is GRANTED.
The parties may conduct the
depositions of Defendants
Garlinghouse and Larsen after
the close of the August 31,
2021 fact discovery deadline.
The deadline to conduct expert
discovery is extended to
November 12, 2021. The
deadline for the parties to
exchange their respective
Statements of Material Facts
pursuant to Local Civil Rule
56.1 and their pre-motion
letters regarding motions for
summary judgment is adjourned
sine die pending resolution of
the motions to dismiss and
strike. (HEREBY ORDERED by
Magistrate Judge Sarah
Netburn) (Text Only Order)."
On August 9 the
SEC filed an "emergency letter
motion" seeking a conference
on getting all of Ripple's
Slack messages. The SEC writes
that Ripple refuses to give
them "on the basis of Ripple's
mistakes in gathering that
data." But, the SEC says, "the
relatively few Slack messages
Ripple has produced have
yielded critically important
information." The filing, or
some of it, is for Selected
Parties Only. Watch this site.
On July 15
Judge Netburn held an oral
argument, below, and ruled
that Hinman must sit for the
deposition, given the public
interest. But it may be
delayed a week. Here is Inner
City Press' thread:
(and now pocast here)
Update: Now on
July 16 the parties have
written to Judge Netburn that
Hinman's deposition is being
pushed back to July 27, with
possible briefing before them
to resolve the scope. Watch
this site.
From July 15:
Judge Netburn: I have before
me the subpoena seek to depose
former SEC official Hinman,
and the SEC application to
quash. SEC? SEC's lawyer: If
official have to testify,
years after, it would have a
chilling effect.
SEC lawyer: Let
me cite again your Honor's
decision in the 9/11 case.
From Page 14 of your decision,
you raised the issue of
repetition and [wait for it]
ripple effect. The burden on
Ripple here is high, and they
have not met it. Any
questions? Judge Netburn: Yes
Judge
Netburn: Let's talk about his
2018 speech. The next prong of
the analysis is how is the
government defining the
speech. He stated these were
his own views... So how would
answering questions interfere
with the deliberative process
of the SEC?
SEC lawyer
Ladan Stewart: A speech is a
speech, it's on the SEC's
website. There is no tension.
Director Hinman consulted with
others in the SEC about the
speech. It was all
pre-decisional...
Judge Netburn: So
what was the decision made?
SEC lawyer: There doesn't have
to be a decision made. We
found another case, not in our
letter: it's Nacchio, 2009
Westlaw 211511, Dist of
Colorado, Jan 29, 2009.
[If it's an SEC case, how
could they not have "found"
it?]
Judge Netburn:
For what proposition are you
citing the Nacchio case? SEC
lawyer: That Mr. Hinman falls
under deliberative process
privilege. Judge Netburn:
Would the privilege be invoked
if Mr. Hinman were asked, Why
do YOU think xyz? SEC: Yes.
Ripple's
lawyer: Mr. Hinman was trying
to provide guidance -- Judge
Netburn: Why do you say that?
Ripple's lawyer: The SEC held
it out to Congress as such.
Then the agency points to the
speech, it shows the speech
was meant to provide guidance.
Judge
Netburn: But if the speech
reflects agency guidance,
isn't the process that led up
to it covered by the
deliberative process
privilege? Ripple's lawyer: We
want to establish, with the
deposition, if this WAS the
policy of the SEC.
Ripple's
lawyer: Mr. Hinman was never
at the apex of the agency. The
SEC is 4,200 employees. Mr.
Hinman's department was much
smaller. Between March 2018
and March 2019 he had a number
of communications giving
guidance. Ripple's lawyer: He
was being asked, Is it an
investment contract under
Howey. Mr. Hinman met with the
founder of the Ethereum
Foundation... And of
Consensus, a leading software
developer for Ether.
Ripple's lawyer:
We don't know who all the 3d
parties he met with are. We
want to ask him. Judge
Netburn: Mr. Rapawy, if you
were asking me to depose him
for a list of who he met with,
I'd direct you to his chief of
staff or deputy. You could get
his calendar
Ripple's
lawyer: It's going to be hotly
contested, we need everything
we can get. And even if the
speech were the decision, we
could still do discovery about
things after the speech. Let
us do the deposition, then
brief it afterward.
Ripple's lawyer:
In unique cases, you do
sometime get depositions of
senior officials, like in the
Judge Furman case, the
Secretary of
Commerce.... Martin
Flemenbaum for Christian
Larsen: We must be able to him
about his other public
remarks.
Judge Netburn: If
I allow the deposition to go
forward, it's Monday?
Flumenbaum: The Defendants are
prepared. SEC: We'd need time
to evaluate. [Meaning,
appeal?] SEC: They want to
depose him twice - he declines
to answer some, then they
bring the transcript to you
Judge
Netburn: In Nacchio, the
deposition in fact
happened... Defense: Mr.
Hinman met with Ether a week
before the speech. This is not
covered by the privilege. SEC
lawyer: If it goes forward,
we'll be instructing not to
answer the questions on
privileged info
Rapawy: We don't
agree to push this back. It
should be possible to avoid 2
depositions, if invocations of
privilege are reasonable.
Matthew Solomon for Bradley
Garlinghouse: My client will
be sitting for a deposition
during this discovery period.
No more delay
Judge Netburn:
The issues are complicated. I
am going to rule in part. I am
prepared to find Mr. Hinman
was a high ranking official.
He is entitled to the standard
in the Lederman case, 731 F.
3d 199.
Judge Netburn: I
find that this case is unique,
and that the amount in
controversy is substantial.
And the public's interest is
significant. In this case, Mr.
Hinman must sit for the
deposition. I am going to
authorize it.
Judge Netburn: It
seems to me to put it off for
a week and think about how the
privilege will apply is a good
idea. Let me know. SEC:
That makes sense to us. We
will meet and confer and get
back to the court. Ripple's
lawyer: Will confer
Judge Netburn:
Let me know by tomorrow
afternoon, if deposition is
Monday or a brief
postponement, you could bring
the issues of privilege to me.
I will wait to hear back.
On
June 14, Judge Netburn agreed
to sign and issue letters for
request for the individual
defendants, Bradley
Garlinghouse and Christian A.
Larsen, to iFinex, Bitforex,
Bitrue Singapore, Coinbene Ltd
Vanuatu, Coinone Co., Upbit
and others. Full request
letter on Patreon here.
Now on June 15,
the letters have been picked
up, and we learn that they
will be going to the
Central
Authorities of
the United
Kingdom of
Great Britain
and Northern
Ireland, the
Cayman
Islands, the
British Virgin
Islands, the
Hong Kong
Special
Administrative
Region of
China, the
Republic of
Singapore, the
Republic of
Seychelles,
the Republic
of Korea, and
the Republic
of Malta.
The
filing: "LETTERS
ROGATORY ISSUED on June 15,
2021, and picked up by Cleary
Gottlieb Steen & Hamilton
LLP and to be served in the
Central Authorities of the
United Kingdom of Great
Britain and Northern Ireland,
the Cayman Islands, the
British Virgin Islands, the
Hong Kong Special
Administrative Region of
China, the Republic of
Singapore, the Republic of
Seychelles, the Republic of
Korea, and the Republic of
Malta.(km)"
On June 2, the
SEC asked for a 60 day
extension of time for
discovery. Full 7-page letter
on Patreon here.
On June 4, Ripple
wrote to Judge Analisa Torres
that they oppose any extension
and will put in more paper
next week. Watch this site.
On Memorial Day
weekend, Judge Netburn
issued a 9-page order denying
the SEC's request, without
prejudice to it being renewed,
full order on Patreon here:
"OPINION & ORDER re: [165]
LETTER MOTION for Local Rule
37.2 Conference addressed to
Magistrate Judge Sarah Netburn
from Jorge G. Tenreiro dated
May 7, 2021, filed by
Securities and Exchange
Commission, [166] LETTER
MOTION for Local Rule 37.2
Conference addressed to
Magistrate Judge Sarah Netburn
from Jorge G. Tenreiro dated
May 7, 2021, filed by
Securities and Exchange
Commission. The SEC's motion
is DENIED. If, at some later
date, Ripple raises its good
faith beliefs or relies upon
its privileged communications
in support of its fair notice
defense, the Plaintiff may
renew its application to the
Court. Respectfully, the Clerk
of Court is directed to deny
the motions at ECF Nos. 165
and 166. (Signed by Magistrate
Judge Sarah Netburn on
5/30/2021)."
Inner City
Press will stay on this.
The case is
Securities and Exchange
Commission v. Ripple Labs Inc.
et al., 20-cv-10832 (Torres /
Netburn)
***
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