SEC vs. Ripple: August 31st Hearing – The Deliberative Process Privilege
August 31, 2021
SEC vs. Ripple: The SEC’s Case FIZZZLES!
September 18, 2021
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Hello and welcome to Legal Briefs. This is attorney Jeremy Hogan and today is Labor day here in the States which I of course celebrate by working.

Working for YOU because probably the most important document filed yet in the SEC v. Ripple case was shown to the public last week without too much fanfare because it was filed at midnight right before the end of fact discovery and it is Ripple’s Motion to Compel the SEC to provide better answers to its Interrogatory questions. Now, these discovery motions are kind of the black sheep of the legal world – usually handed off to younger associates to handle as they are rather boring and tedious BUT not today my friends because I have decided to hype the heck out of this motion and therefore I present – Legal Briefs “Hype’ edition.

Welcome to Legal Briefs!

Let’s get right to it and look at  Ripple’s motion to compel answers to interrogatories because this is the first time we have seen this stuff and believe it or not it’s the MOST IMPORTANT pleading we have seen so far.

And here’s why.  Mr. Hinman, just for example, can  SAY that his statements are only his personal views. But the SEC, as the Plaintiff who decided to file a lawsuit, HAS to answer questions from Ripple and those are called interrogatories. So, Ripple has sent these Interrogatory questions to the Sec and the has responded and now we are fighting over whether those answers are sufficient.

And to explain what interrogatories are and why they are so important I introduce to you Professor Thien-Vu Hogan to explain Rule 33 of the Federal Rules!

The Rule for Interrogatories is Rule 33 and interrogatories are written questions and each party can ask 25 questions – that’s in paragraph (a)(1).  And what can you ask about? You can ask fairly broad questions and looking at (a)(2) which is titled “Scope” you can see that a party in a lawsuit can even ask questions that ask for “…the application of law to fact.”  That’s very important here as we’ll see in a bit. 

And finally, and this is key – looking at paragraph (b)(3) – the rules say that “Each interrogatory must…be answered separately and fully in writing under OATH.

And it’s the “Under oath” part that is key because that means that these responses are THE TESTIMONY OF THE SEC.

In other words, these answers can be introduced into evidence, quoted at trial, used during closing statement, etc. just like the SEC was on the stand with it’s right hand up in the air.

Just imagine her name is Stacy Evans Cabrera – SEC.

And really, as the party that brings the lawsuit, the burden really is on the Plaintiff to make its case. In my practice, I represent the Plaintiff 95% of the time and I can’t just sue someone without really knowing why and being able to spell it out.  When I sue an insurance company for breaching its contract with its insured, I better have a copy of the contract, know what provision was breached, how it was breached and what my client’s damages are and I CERTAINLY need to know those things after 9 months of discovery.

But what we can see here in Ripple’s motion to compel answers or BETTER answers to its Interrogatories is the SEC lawyers really STRUGGLE  to lay out the entirety of its case with any specificity.  Let’s take a look at this motion and introduce it with some hype.  Ripple’s Motion to Compel!

I wish someone would do that with My Motions…

So, to break down Ripple’s Motion to Compel for you – it’s generally asking the Court to force the SEC to answer 3 broad answers.  The first broad area is – tell us SEC, how were sales of XRP sales of securities.  These areas of inquiry are Interrogatories 2, 6, 11, 17, 19 and they are all phrased in slightly different ways but they essentially ask the SEC to lay out ITS case. The 2nd area of inquiry is about internal and external discussions about the security status of XRP, Ether, and Bitcoin.  And the 3rd area is generally about technical issues related to the XRP ledger and decentralization.

But let’s focus on the first area of inquiry because the Interrogatories ask the SEC – how was Ripple’s sales of XRP sales of a security.   So, these answers, this is IT – this is what the SEC is going to PROVE in Court and so let’s take a look at its answer UNDER OATH.

And we are looking at Exhibit A to the Mt to Compel and this is the SEC’s Response and Objections to Interrogatory No. 2. At the bottom of page 7:

Now, a little hint if you are ever reviewing Interrogatory responses, you are usually going to see about every legal objection in the world to a question, I do it also.  The hint here is to ignore them and scroll down and look for these magic words: “Notwithstanding the above objections…” and that is where the answer starts and there it is at the top of page 10.

And normally I wouldn’t just read with you a page of a document but this is important.  This is the entirety of the case that the SEC is bringing.  This is the evidence that XRP was sold as a security so let’s read it.

“These public statements included, but are not limited to: promises to and discussions of Ripple’s own incentives and plans to create an active and liquid trading market for XRP and to develop and foster “uses” for XRP; Ripple’s and its affiliates’, agents’, and executives’ incentives to build an ecosystem that utilized XRP and to be a good “steward” of XRP; Ripple’s significant holdings of XRP and its relationships to the company’s financial operations; Ripple’s and its affiliates’, agents’, and executives’ actual efforts to create demand for XRP; and statements touting the increase in price of XRP and its availability on digital asset trading platforms. These types of statements, and others of substantially similar sum and substance, were made, among other places, in YouTube videos, Tweets, and posts on digital asset discussion fora by Ripple personnel David Schwartz, Patrick Griffin, Arthur Britto, Breanne Madigan, Monica Long, Asheesh Birla, Miguel Vias, and Defendants Garlinghouse and Larsen (though many other Ripple employees made such public statements as well), from 2013 through 2020; public statements posted by Ripple on its website and on its Twitter or YouTube accounts including periodic updates and the quarterly “XRP Market Reports”; emails between Ripple personnel and members of the public discussing Ripple and/or XRP; and in-person conversations between Ripple personnel and members of the public discussing Ripple and/or XRP, such as at digital asset discussion symposia or fora. In addition, the economic reality of (1) Ripple’s holdings of XRP, Ripple’s incentives with respect to XRP, Ripple’s offers and sales of XRP (including, on occasion at a discount to market prices), the lack of uses for XRP, and Ripple’s Case 1:20-cv-10832-AT-SN Document 326-1 Filed 08/31/21 Page 11 of 31 11 promises to create uses for XRP; and of (2) XRP itself and its relationship to Ripple, all created in XRP purchasers a reasonable “expectation of profit” from their purchase of XRP.”

AND THAT’s IT.  That. Is. The . case.  Under oath and in its entirety so let’s briefly unpack that.

First, the SEC alleges that Ripple was involved in creating a liquid market for XRP. I think we all understand why it would do that – because its use case for XRP requires a liquid market. And also that Ripple promised to create “uses” for XRP.

Second, that Ripple attempted to manipulate the price of XRP.  We all know that Ripple failed in this – nothing Ripple has done has ever seemed to seriously effect the price of XRP but the point is that it tried. And the SEC lists specific people that tried to manipulate the market and  – did so on Twitter and Youtube (I didn’t know Youtube was such a powerful business forum). Although look at what happened since this motion was filed.

And finally, the SEC states that XRP did not have any use and therefore purchasers were looking to Ripple to find uses for it and that would increase the value.

So, putting aside whether the SEC has proven or can prove its case with these facts, the question for this motion becomes – is that a good enough answer?

TO see what the law says, we go back to our legal expert Thien-Vu Hogan.

Legal Expert.  Exactly.

Looking at Ripple’s motion top of page 2:

“Rule 33 requires the SEC to answer each interrogatory “separately and fully,” Fed. R. Civ. P. 33(b)(3), and in a manner that is as “specific as possible and not evasive,” Trueman, 2010 WL 681341, at *3. Rule 33 requires full and complete responses to interrogatories in order “to ‘minimize uncertainty concerning the scope of [the SEC’s] claims.’”

Thank you professor.

So, the question is, did the SEC answer the question fully and as specific as possible and I would answer that no, this answer to THE QUESTION that is the heart of the case is NOT specific enough.  I mean, at one point in answering Interrogatory #8, the SEC provides a link to evidence and it’s just a link to Twitter in general.

When I clicked on that piece of evidence, I saw a picture of my face – that’s some ugly evidence.

So for that reason alone, I would predict that Ripple’s motion to compel better answers to interrogatories will be granted in large part.  But that being said, it’s probably in the SEC’s best interests to amend its answers because they aren’t very compelling to me and obviously not very specific and If I was representing the SEC I would want to amend these with an eye towards summary judgment and I think it will be allowed to do so because discovery has not been completed yet – there is still the depositions of Brad Garlinglinghouse and Chris Larsen this month and also expert witness testimony so I think there WILL be amended answers and I think the SEC will be forced to show its hand and not just a hand as drawn by a 4 year old but a detailed Rembrandt hand with  joints and wrinkles and such.

And we learned one more thing from this motion, which I want to touch on briefly, which is a big problem, not only for the SEC but really for the Court as well. 

Looking at the bottom of page 2 of the motion, “The SEC responded that, “every offer, sale and distribution of XRP by [Defendants]” over an eight-year period – which Defendants estimate includes, but is not limited to, approximately 1,700 contracts –“

Wait a minute, because the SEC waited over 8 years to bring this action, we are looking at over 1,700 sales of XRP to various entities BY various entities with different arrangements and many of the resales made to non-United States exchanges and entities.  Forget about whether the 1,700 sales were investment contracts, how is the Court going to analyze jurisdiction over the sales in order to analyze damages?  I have no idea how this is even possible and…I’m glad it’s not my job to figure out.  What a mess.

In any case, thanks for watching, and thank you to my 12 year old daughter for doing our hype videos – she is really good with the editing – including this.

Thien-Vu Hogan
Thien-Vu Hogan
Attorney Thien-Vu Hogan is the founding and managing partner of Hogan & Hogan.