TRANSCRIPTION OF VIDEO:
Hello and Welcome to Legal Briefs Crypto XRP edition. Wow, lots of stuff to talk about – the SEC has apparently been playing some dirty poker recently and even more importantly Attorney John Deaton has filed his Motion to Intervene and proposed Answer on behalf of XRP owners and I’m going to tell you all about that and how vital it is to Ripple’s case.
But first, as you know, the price of XRP is down a little and honestly my work at the law firm has been a little slow so ..please excuse me one second as I had to take on a 3rd job. I’ll be right back.
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Ok so today we are going to get up to speed on the SEC v. Ripple case and I have been stalking the case like a panther in the dark jungle and I am ready to pounce.
But first, remember that nothing I say is legal advice. I can’t even sell t-shirts well so if you really need a good lawyer, and are willing to wait until next year, ask her:
Yes, she is actually apprenticing to become a lawyer and has passed the “Mini-bar” which is a type of legal test, not the fact that she stopped drinking. And I say “Good for her” – I’m happy she’s trying to make a difference. Maybe she can shill the t-shirts and I can help her with her legal cases … an exchange.
In any case the first things we are touching on here is the Defendant’s objections to certain SEC unfair discovery moves and then we are really going to be talking about the bigger news to me which is the XRP Holders Motions which are really bringing a new look into the case- which I will explain shortly.
But first, on April16 we saw a letter-motion sent to Judge Netburn by the Defendants in the case and it was essentially a discovery objection.
Right there at the top of the page you can see that what the Defendants want: “The SEC should be ordered to cease all use of MOU requests…”
And this is what is going on. The United States govt. has agreements – called Memoranda of Understanding (MOUs) with other countries that they can each make requests of each other. So, for example, the SEC can go to the Japanese securities agency and say “Please ask SBI corp for all documents related to the XRP security” and the Japanese security agency would say “Wait, XRP is not a security – tonde mo nai. Baka!” (Just a little joke there)
So, under the MOU, the Japanese securities agency, called the Kinyu-chou would respond by making the request to the SBI company and the SBI would have to respond with all the documents and then the Kinyu-chou would forward the documents to the SEC – all under a kind of treaty between the US and Japan. Now not only this outside the scope of the Federal Rules of Civil Procedure but also outside of the Court Order issued by the Judge regarding discovery in this case and also puts a burden and stress on Ripple’s business partners.
So, Ripple and the other Defendants have objected to the Court in this letter and I have reviewed the case authority in brief and, unless the SEC pulls a surprise out of somewhere, I think the SEC is in for another bad ruling against it. Because this isn’t really fair – us lawyers say “equitable” – you can’t use the full power and authority of the U.S. Government in civil litigation against a private entity. NO private party could go to Japan and force them to get certain documents for them and so I don’t understand why the SEC is doing this and if I was Judge I would be a little irritated that the SEC was making an end-run around the Rules of Court. So I don’t understand what they are doing and I think they will get hammered for it and, I could be wrong, but so far in this litigation I’m batting about .900 so…if I was a baseball player everyone except the Yankees would hire me. (A little Yankees jab there). But I don’t think this ends well for the SEC.
But in ANY CASE, on to the MAIN EVENT which is Att’y John Deaton’s motion to intervene which we know was initially denied and this is the second bite at the apple and I have read it and I like it, I like it a lot and I’ll tell you why.
Attorney Deaton is like me, we are not by background securities lawyer – we are litigators but the first time we ever read the Howey case entirely was in January of this year. SO what this litigation has been like to date is a group of specialists – Securities lawyers -arguing a securities case. And that type of litigation takes on what appears to a Judge to be well-orchestrated ballet. Back and forth and point and counterpoint – the Juliet school of litigation.
But Deaton is an outsider and he is like an injection of rock and roll into our ballet. Because he’s an outsider his analysis is less nuanced and subtle and more to the point and, frankly its refreshing for me, I think it will be refreshing for the Judge. Let’s take a look.
So in Moving to Intervene, the XRP Holders have to file a Proposed Answer to the lawsuit so the Judge can see what the XRP Holders would argue and I started by looking at that – always start at the end.
The first thing to note is that the XRP Holders are coming in on the Defendant side – against the SEC – look at the case style. You have no idea how uncommon that is. The SEC is supposed to be protecting the holders of XRP and here you have the holders coming in as Defendants. This alone sends a message to the Judge.
And right away Deaton comes in and tells the Court what the purpose of the XRP holders in the case is in paragraph 1: “the Complaint filed by the SEC is a bewildering attempt to regulate XRP itself, as a security. Rather than limit the allegations to Defendant’s specific sales and distributions of investment contracts, the SEC repeatedly claims XRP to be a security Per Se.”
And he is correct – it’s not XRP itself – which is just an alphanumeric sequence – which is a security, it’s the sale or sales that must be analyzed. And Deaton hits them with on page 2 in the quote from the Telegram case:
“the security was not the “Gram itself – not the crypto-currency itself – but the entire scheme that comprised the purchase and undertakings by Telegram.”
I love the reference to the Telegram case because the SEC’s attorney in the Telegram was the same as in the Ripple case. – a little jab there perhaps.
And again, the SEC has only itself to blame for being in the position to have to try and make the argument that XRP is somehow a security in and of itself because it waited so long to file the litigation. In the Telegram case the sales of the Gram coin took place in 2018 and the lawsuit was filed in 2019 after only one sale, making it a very clean case for the SEC. With Ripple, there have been – I don’t even know how many sales – ever since 2013. Hundreds? So, if the SEC doesn’t allege a kind of per se security status are they going to go in and gather facts about each and every sale and argue the facts of over a hundred sales? No, that would be an absolute mess – so the SEC is left with this general, vague argument about XRP being a security per se.
So that is the Proposed Answer to the lawsuit and it is fairly straightforward and I think the Judge will see how the XRP holders will fit into the lawsuit.
But before that happens, Attorney Deaton and the XRP Holders have to persuade the Judge that they should be allowed into the lawsuit and that is what the Motion to Intervene is for so let’s take a quick look at that. Under the Federal Rules, in order to get involved in a lawsuit you have to show:
That the applicant asserts an interest relating to the property or transaction that is the subject of the action that will be effected by the lawsuit AND that the applicant’s interest is not adequately represented by the other parties.
So, the XRP Holders have to show that they have an interest in the lawsuit and that Ripple will not adequately represent their interests.
The first part is relatively straightforward because IF XRP is deemed a security there’d be no feasible way to trade it – at least in the U.S.
I think the more difficult part might be that Ripple the company will not adequately defend the XRP Holder’s interest and I thought that’s where Deaton would start but I really like what he does here. Instead of talking about Ripple first he starts with paragraph 1 – “The SEC Does not adequately represent the interest of XRP Holders” That is Brilliant and it leads to this:
“Clearly, the SEC is either unaware of XRP Holders’ use of XRP or they are choosing to ignore such use for litigation reasons.”
Ouch. That hurts. The people you are supposed to be protecting saying that you don’t give a crap about them. Dang.
And then this right afterwards:
“This statement alone proves that the SEC fails to truly understand or appreciate the threat to XRP Holders’ interests that the overly broad and vague allegations contained in its complaint against Ripple and XRP Holders have caused. There are literally hundreds of businesses and developers – independent of Ripple and its executives – utilizing the underlying technologies of XRP and the XRPL. Many of those developers and individuals and small businesses have been slowed or halted due to the allegation that today’s XRP itself is an investment contract and thus a security.”
LOVE.IT.
Now remember – this Motion to Intervene can only address certain issues and Deaton has championed certain allegations online about why and how this lawsuit was filed – Hynman and Clayton and how they were and are paid by ..certain interests perhaps adverse to Ripple and XRP. And that may still come into this litigation but NOW is not the time..that has to be later. So don’t get frustrated because it’s not in here.
So, the Judge has 3 options with the Motion to Intervene: Allow the XRP Holders in as a party to the lawsuit, allow them in only to submit one brief towards the end of the case – it’s called an amicus brief, or not let them have any involvement at all.
And soo finally the question becomes – what will the Judge do? WHAT . WILL. She. DO.
And the short answer is I don’t know. The caselaw says the Judge has almost complete authority on the issue to do whatever she wants. My instinct is that she’ll allow XRP holders only a limited involvement. That would keep the XRP Holders from sticking their nose into discovery and depositions, etc. but allow them to submit briefs to the court about their positions and such. BUT I DON”T KNOW.
But maybe more importantly, I DON”T CARE. Yes, I want it to happen but really the damage has already been done to SEC’s case. Judge Soto will review this motion herself and accompanying Answer to the lawsuit. She will quickly see that something is not right – right away – why are purchasers of securities on the side of the Defendant? That is completely backwards and will instantly draw her attention – what is going on here?
She is also going to see that people and companies are using XRP for all kinds of stuff – she is going look at all the use cases. And maybe most importantly she is going to see that real people with real names are being hurt and will be hurt if the SEC is successful – and that is EXACTLY the opposite of what is supposed to happen in these actions.
So, in a way the CAT is OUT OF THE BAG. And you know, once that happens, it can’t be put back in – even if the motion is denied – the secret is out.
So Congratulations to Att’y Deaton for jumping in and pulling that cat out of the bag and to the 11 and some thousand people who assisted him. This motion REALLY hurts the SEC’s case – no matter what happens from here.
I read the motion and when I finished I sat back and was thankful because it reminded me that sometimes when you see an injustice you just need to jump in and fight it and let the cards fall – where. They. may. That usually works out in the end. Thanks for watching.
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