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In XRP Case Ripple Wants Trading Records of SEC Staff and Family on Crypto, SEC Says No

By Matthew Russell Lee, Patreon Podcast
BBC - Guardian UK - Honduras - ESPN

SDNY COURTHOUSE, Sept 3 – 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 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. 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.]

  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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