Ripple Gets One Over the SEC as Court Orders Production of Ether-is-not-Security Hinman Speech

In the ongoing US Securities Exchange Commission (SEC) vs. Ripple Labs case, Magistrate Judge Sarah Netburn, on July 12, dismissed the agency’s appeal for the protection of William Hinman’s speech from disclosure. 

“This argument was previously raised secondarily, with the SEC primarily asserting the deliberative process privilege. The SEC’s motion is DENIED,” she said. 

The court also ordered the production of the documents, which “must be produced.”

What is Hinman’s Speech?

In a speech at Yahoo Market Summit in June 2018, Hinman, who was the Director of the Division of Corporate Finance at SEC at that time, suggested that Ether (ETH) is not a security. Despite its initial coin offering in 2014, ETH transformed from security to non-security, he had said. 

In the SEC vs Ripple case, the Commission accused the blockchain firm of “unlawful offer or sale of securities” and its co-founders Bradley Garlinghouse and Chris Larsen of aiding and abetting the violations. 

However, Ripple Labs refuses to accept the argument that XRP coins were securities. Given this, Hinman’s speech turns out to be an important defense for Ripple Labs in the ongoing legal battle.

For the same reason, the SEC would not want Hinman’s words to be taken seriously by the court. 

SEC Stance Hippocratic: Judge

The judge termed the SEC’s stance hypocrisy for calling Hinman’s opinion personal and, at the same time, seeking protection from its disclosure.

“The hypocrisy in arguing to the Court, on the one hand, that the Speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his Speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law,” the judge said in her ruling. 

Wider Significance

The much-publicized SEC vs. Ripple case holds broader significance as the agency is seeking power to regulate digital assets and legitimize its claim that they must be treated as securities. 

However, for the SEC, the road to regulatory control over digital assets is not easy. A bipartisan crypto regulation bill in the US senate seeks to define digital assets as commodities and favors bringing them under the purview of the Commodity Futures Trading Commission (CFTC). 

Brad Garlinghouse, CEO of Ripple Labs, one of the largest blockchain firms with a significant presence in gross settlements and remittance business, said that if the SEC wins the case, the company would leave the United States.   

Given this, every development in the case is keenly followed in the crypto industry, and Judge Netburn’s ruling is surely one such development.  

“This was not even a nuanced opinion. Judge Netburn tore apart every SEC argument for the attorney-client privilege of the Hinman emails,” Jeremy Hogan, a partner at law firm Hogan & Hogan said in a tweet. 

This was not even a nuanced opinion. Judge Netburn tore apart every SEC argument for attorney-client privilege of the Hinman emails.

That starts the 14 day clock for an appeal to Judge Torres. And if her recent Orders are any precedent, things will move relatively fast. https://t.co/7k6KJx4Lea

— Jeremy Hogan (@attorneyjeremy1) July 12, 2022