Ripple Scores Major Win Against SEC as Judge Refuses to Shield Hinman’s Ethereum Speech Docs

The ongoing legal battle between Ripple and the Securities and Exchange Commission (SEC) has taken another dramatic turn! In a significant victory for Ripple, a US Magistrate Judge Sarah Netburn has rejected the SEC’s application to review the deliberate process privilege (DPP) ruling. This decision compels the SEC to disclose crucial internal communications, including a draft of former SEC official William Hinman’s controversial speech about Ethereum.

James K. Filan, a former federal prosecutor closely following the case, hailed this as a “very important win” for Ripple in a tweet that quickly ignited the crypto community. But what exactly does this ruling mean, and why is Hinman’s speech so important?

Unpacking the SEC’s Deliberate Process Privilege Claim and Ripple’s Victory

The heart of this latest development lies in the SEC’s attempt to use the Deliberate Process Privilege (DPP) to shield certain documents from being disclosed in the lawsuit. The DPP is a legal doctrine that allows government agencies to protect internal deliberations and opinions to ensure open and frank discussions within the agency.

In this case, the SEC argued that the DPP should protect emails and drafts related to a 2018 speech by William Hinman, then Director of Corporation Finance at the SEC. In this speech, Hinman stated that Ether (ETH), the cryptocurrency powering the Ethereum network, was not a security. This is a crucial point because the SEC’s lawsuit against Ripple alleges that XRP, Ripple’s native cryptocurrency, is an unregistered security.

The SEC wanted to keep these Hinman speech-related documents private, arguing they were part of internal deliberations. However, Judge Netburn didn’t buy this argument. She ruled against the SEC, stating that the DPP did not apply because:

• Personal Opinions, Not Agency Deliberations: The judge found that the documents in question represented the agency employees’ personal views and opinions, rather than formal agency deliberations.
• Not Pre-Decisional or Deliberative: The court further clarified that the communications were not considered “pre-decisional” or “deliberative” in the context of agency policy-making.

This ruling essentially means the SEC cannot hide behind the DPP to avoid disclosing these potentially crucial documents. Ripple, unsurprisingly, welcomed this decision and even sought further clarification and reconsideration, aiming to solidify their legal position.

Why is Hinman’s Ethereum Speech So Important?

The significance of Hinman’s speech in the Ripple case cannot be overstated. Here’s why it’s such a hot topic:

• Precedent for Crypto Classification: Hinman’s statement that Ether is not a security is seen by many in the crypto industry as a crucial piece of informal guidance from the SEC. If Ether, a major cryptocurrency, is not a security, then the argument for XRP being classified as one becomes weaker.
• Contradiction in SEC’s Stance?: Ripple’s defense hinges on the argument that XRP is similar to Ether and Bitcoin, which the SEC has, to some extent, indicated are not securities. Access to documents surrounding Hinman’s speech could reveal internal SEC discussions and potentially expose inconsistencies or contradictions in the SEC’s approach to classifying cryptocurrencies.
• Fair Notice Defense: Ripple is also arguing that they lacked “fair notice” that XRP would be considered a security. Hinman’s speech, delivered by a high-ranking SEC official, could support Ripple’s claim that the regulatory landscape was unclear, and they didn’t have sufficient warning.

The SEC’s Attempt to ‘Minimize’ Its Own Viewpoint?

Judge Netburn’s recent order goes even further, suggesting that the SEC is trying to downplay or “minimize” its connection to Hinman’s speech. The judge pointed out that the SEC seems to be distancing itself from a statement made by one of its top officials.

This raises questions about the SEC’s internal consistency and its approach to regulating the crypto industry. If the SEC is now attempting to distance itself from Hinman’s speech, it could weaken their argument against Ripple and XRP.

Bitcoin Deliberations and Parallel Tracks

Adding another layer of intrigue, the court order highlights that the SEC was simultaneously deliberating on Bitcoin regulations around the time of Hinman’s Ethereum speech. This parallel activity is important because:

• Context is Key: Understanding the SEC’s deliberations on Bitcoin at the same time as Hinman’s speech on Ether provides valuable context. It could shed light on the agency’s broader thinking about digital assets and their classification.
• Potential Inconsistencies: If the SEC was considering Bitcoin as not a security, and Hinman was suggesting the same for Ether, then the lawsuit against Ripple for XRP being a security appears even more isolated and potentially inconsistent.

The judge’s ruling emphasizes that communications related to these parallel Bitcoin deliberations are distinct from the Hinman speech documents. The SEC cannot conflate the two to shield the Hinman-related emails.

What’s Next in the Ripple vs. SEC Saga?

This ruling is undoubtedly a significant win for Ripple, but the legal battle is far from over. Here’s what to watch out for:

• SEC Compliance: The SEC is now ordered to produce the Hinman speech-related documents. The content of these documents will be closely scrutinized by both sides and the crypto community.
• Further Clarification: While the judge has denied the SEC’s review application, she has also agreed that further clarification will “benefit the parties.” This suggests there might be ongoing discussions or refinements to the scope of document disclosure.
• Potential Redactions: The court has acknowledged that if some SEC communications have an “essential link” to agency deliberations, the SEC might still be able to redact or withhold parts of them. The extent of these redactions will be another point of contention.
• Overall Case Trajectory: This document disclosure ruling is a crucial step in the discovery phase of the lawsuit. It strengthens Ripple’s hand and could potentially influence the overall trajectory of the case. The pressure is now on the SEC to respond and continue to build their case against Ripple.

The Ripple vs. SEC lawsuit continues to be a landmark case for the entire cryptocurrency industry. The outcome will have far-reaching implications for crypto regulation in the US and beyond. This latest ruling underscores the importance of transparency and fair process in regulatory enforcement, and it’s a victory that resonates with many in the crypto space who are seeking clarity and a level playing field.

Stay tuned for more updates as this high-stakes legal drama unfolds!

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