Late last year, the U.S. Securities and Exchange Commission (SEC) filed suit against Ripple and senior executives, alleging that XRP is a security. At a hearing yesterday, U.S. Magistrate Judge Sarah Netburn granted a large part of the defendant’s motion that the SEC disclose papers “expressing the agency’s interpretation or views” on cryptocurrency, Law360 reported. However, Ripple made a damaging disclosure last week.
Yesterday’s SEC hearing
In yesterday’s hearing yesterday, the Ripple defendants are looking for some reference by the SEC that XRP is similar to Bitcoin and Ether, which are both not deemed securities.
The judge said these SEC documents are likely discoverable, but both sides can still argue about specifics. However, she distinguished between staff-to-staff SEC communications that do not need to be produced and SEC minutes and memos that are likely to be produced.
Ripple’s damaging disclosure
Late last week, another related case filing might be viewed as damaging for Ripple because it showed discussions about XRP possibly being viewed as a security. The defendants opposed the publication of four Ripple-related documents but agreed with the SEC that two of them could be released.
One document is an email with both the sender and the recipient redacted, but an investor or their representative is likely one of the parties. There are discussions about risk factors, possibly for an investment document.
One of the emails stated it wants to add a risk factor as follows:
“The Ripple ecosystem’s reliance on the efforts of Ripple Labs — the single largest holder of XRP (VC1) – to promote and expand the ecosystem, creates greater risk that XRP might be deemed as a security as compared to other virtual currencies and Ripple Labs might be deemed to be operating as an unregistered securities exchange, broker, or dealer under federal and State securities laws.”
The party requesting the risk factor addition seems the more knowledgeable of the two about Ripple’s inner workings.
And a later email in the same thread includes a statement by the other party, “I think this risk factor is related to why Ripple is likely to be viewed as more control over XRP as other Bitcoin holders due to the fact that Ripple creates XRP and holds most of this.”
There are two other documents not yet released. According to the SEC, Ripple’s main argument is that the papers disclose counsel discussions that are usually deemed privileged. However, the privilege falls away if legal opinions are shared with third parties, as the SEC claims.
One of Ripple’s challenges is it is juggling multiple lawsuits. And disclosures in one case might impact other cases. For example, there is a private case against Ripple alleging it is a security, where this latest reveal won’t help. Ripple is also being sued by one of its investors.
Meanwhile, the SEC filed the Ripple lawsuit towards the end of Chairman Jay Clayton’s office. The big question is whether or not the likely-to-be-confirmed SEC Chairman Gary Gensler will take a different view.