TRANSCRIPT OF VIDEO:
Hello and welcome to Legal Briefs and yesterday the Ripple side filed a response brief to the SEC’s appeal of the ruling from the magistrate judge that the Hinman emails must be turned over and it was very cool – not fire but ice cold and I am going to give you the good news AND the bad news from this. Which do you want first? If you want the good news first, hit the like button but if you want the bad news first, hit the dislike button.
[INTRO]
Welcome back and take a look down below and obviously everyone only hit the Like button so we will go over the good news first. So sit back and we are going to tell you all that’s important about the SEC objection to Judge Netburn and Ripple’s reply brief and Who. Will. Win. And then at the end of the video, I will drop the bad news and leave you crying.
Okay, so, at stake are sixty-some internal SEC emails which, according to people much smarter and “in-the-know” than me, contain reference to XRP and its security status – or perhaps more specifically – a lot of confusion about its security status and which confusion was provided to market participants. If the SEC runs out of ways to hide the emails well – here’s the headline:
“John Deaton says Hinman’s docs will never see the light of day, SEC may settle with Ripple rather than surrender documents”
In other words, this issue may be the most important legal issue to be ruled on next to summary judgment.
So, knowing that everything might be riding on this, let’s start with the SEC’s appeal which was filed 2 weeks ago.
Now, technically this was not an “appeal” but an objection to Judge Netburn’s order forcing the turnover of the emails. Judge Netburn is a magistrate judge and she can be appealed to the Circuit Judge which is Judge Torres.
Interesting side note? Do you know why they are called Circuit Courts and Circuit judges? It actually began under King Henry II like Game of Thrones long ago and King Henry appointed judges that would ride around on horses and go town to town hearing cases and that became known as the “Circuit” and the judges as “Circuit Judges.” Of course, that practice went away with the popularity of the car but the name sticks. Don’t look out for Judge Torres riding up to your neighborhood on a horse.
But back to the SEC, I found it’s argument rather straightforward but confusing all at the same time. This is more formal briefing so there is a Table of Contents and right there are the arguments:
Roman Numeral I – The emails are not Relevant.
Roman Numeral II – The Deliberative Process Privilege protects the emails from being disclosed.
Roman Numeral III – the emails are protected by attorney-client privilege.
Now these are of course all arguments that the SEC raised with Judge Netburn and lost and the argument is really very much the same and I’m going to save you from reading a lot of this because the relevance argument is dead on arrival. The emails ARE probably relevant to the Section 5 violation and maybe even the Fair Notice Defense but they are CERTAINLY relevant to the individual defendant’s knowledge that what they were doing was wrong. Why? Because if trained SEC lawyers were showing uncertainty about digital assets in these emails – how the heck were laypeople supposed to know? Same thing with the Attorney-Client privilege argument – it’s not going to be overturned on that ground.
Now, I’ve read the SEC brief 2 or 3 times but how could you know the main argument without even reading it? Look at the Table of Contents and at how many pages out of 20 the SEC gives to each argument?
There you can see the Relevance arguments on page 9 and it ends on page 11. That’s just 2 pages.
The DPP argument starts on 11 and ends on page 19 – that’s almost 10 pages.
And the attorney-client privilege argument gets… 1 page.
Yep, even the SEC knows that the DPP argument is really what this is about.
So, what are they arguing as far as the DPP argument? First, recall that the deliberative process privilege protects government docs where there is deliberation about what policy to enact. And the problem that the SEC ran into like a brick wall with Judge Netburn was that since they previously stated and Hinman testified it was his personal opinion only, there was no deliberation about a policy. This was just SEC lawyers giving Hinman advice and input on his speech to make sure it wasn’t contrary to SEC positions. So here is how the SEC is trying to spin its way around that problem:
Looking at the bottom of page 12:
“We are also aware of no legal authority for dividing all statements by agency officials into two binary categories: either agency statements or personal statements. Requiring that all statements by agency officials fall into one category or another fails to take into account how agencies like the SEC function and how agency officials communicate with the public about agency matters. The SEC urges the Court to recognize the more nuanced reality, which is that statements like the Speech, while not an official position adopted by the Commission, contain an agency official’s (or his division’s) views about policy issues pending before the agency.”
And there you have it – the argument in essence is that the SEC and agencies like it are special and indeed a speech can be both a personal speech and ALSO an official position of that person’s Division. And therefore, because this was the Division’s opinion as well as Mr. Hinman’s it was indeed an official deliberation which took place in these emails.
Indeed, just for this brief, the SEC came up with a FOURTH argument as to what the speech was. For purposes of this brief, the Hinman speech was:
“Director Hinman’s Speech, which he gave while he was the head of Corp Fin, provided guidance to market participants about how staff in that SEC division would analyze whether offers and sales of digital assets constitute securities under Supreme Court precedent.”
And there you have the numero quatro variant – the speech was a statement as to how the Division of Corporate Finance would analyze digital assets. And not only that – the SEC has now officially added that the speech “provided market guidance” to the public about how that would work.
I tell you, the SEC has argued so many variations of what the Hinman speech was, I feel like I’ve been on a roller coaster – kinda nauseous. Let’s ask my spirit son how he feels.
I love that boy so much.
In any case, Attorney Solomon filed the Reply Brief and it was not too flashy from Mr. Solomon – straightforward but there were a couple really interesting nuggets in there.
When you’ve won a motion and its being appealed or objected to like this you are in a pretty good position and you are also in a somewhat strange place where you are essentially playing backup to the Judge. It’s a good place to be. Your Judge wants her Order to stick and you want her Order to stick so you two are on the same team.
And so the first question to address is, what does the other side have to show in order to get a new judge to overturn the Order. In law, this is called the “Standard of Review” and it’s kinda like the “burden of proof” that you might have heard of. There are different levels of burdens of proof such as “Beyond a reasonable doubt” in criminal trials. In appellate cases or objections like this, there is a burden of proof called “Clearly erroneous” and you can think of it as similar to “Beyond a reasonable doubt.” The SEC must offer proof or evidence to Judge Torres that Judge Netburn was making a “clear error” when she ordered the emails produced.
Ripple Response to SEC Obection.pdf (dropbox.com)
“The SEC effectively concedes that Judge Netburn got the law right on these issues, setting out the legal tests in nearly identical terms and citing the same authority. It disagrees only with the Court’s factual findings and the natural conclusions therefrom. But the standard of review for this Objection—for clear error—is at its most deferential. The SEC cannot show clear error on any of the issues.”
Two important points from this paragraph. First, kind of like a criminal trial, a tie goes to Ripple. If Judge Torres looks at the emails and thinks “Well, I can see where the SEC is coming from, and I even like their argument better than Ripple’s, but at least I can also see where Judge Netburn is coming from.” Then in that case, she must rule to uphold Judge Netburn’s Order. It has to be “clear” to Judge Torres that Netburn screwed up.
Second,, if true, and I think it is, that the SEC concedes Judge Netburn got the law correct, then the SEC is in a tough place because it can only argue she got the facts wrong. And that’s a tough place to be for a lawyer because keep in mind that NOTHING an attorney says are facts. Nothing I say in Court is evidence. So really the SEC can’t add anything new for Judge Torres, they can only spin the current facts.
And that is why the reply brief is very factual and relatively laid back for Attorney Solomon as he focuses on the facts that were presented to Judge Netburn about the speech and focusing on the SEC’s constantly changing position. And as vanilla as most of the brief was, Solomon couldn’t help but get in a zinger and here it is in what will be your favorite part of the brief at the bottom of page 3. It’s a little long but it’s good:
Ripple Response to SEC Obection.pdf (dropbox.com)
“When it suited the SEC, the agency argued that the Speech reflected only Hinman’s “personal views,” and disclaimed that he was speaking about SEC policy. Only after maintaining that position for nearly a year, and after Judge Netburn credited those representations and held that the communications about what the Speech should say are not privileged, did the SEC change its story—arguing now that the Speech was “guidance to market participants.” Obj. at 5.The SEC’s real objection appears to be that Judge Netburn did not accept the SEC’s invitation to retreat from her findings when the SEC, apparently realizing belatedly the legal implications of its efforts to characterize the Speech as a personal “outside activity” of Hinman, sought to put the toothpaste back in the tube and rely on self-contradictory lawyer argument to avoid the consequences of its litigation strategy. But that was not error; it was the faithful application of law to facts. The SEC’s Objection must be denied.”
And that’s the big problem that the SEC is going to run into here. The evidence in the case is Hinman’s deposition and sworn declaration in which he states that the speech was intended to reflect his own views. An attorney, now a year later, saying in a legal pleading that it actually reflected the Division’s opinion, is meaningless. It’s a nothing burger because you, the lawyer, are not a witness. And so the SEC is stuck with what Hinman said. Now, the SEC could have deposed another person at the SEC and had them say that it was the Division’s opinion and that would be admissible. But, apparently they didn’t do that. Because it’s not in here.
And so, the SEC is left arguing the Deliberative Process Privilege without there being any Deliberation because there was nothing official to deliberate other than what Hinman’s personal opinion should be. And, that’ not going to fly because it’s just the:
Which goes to say that there is, once again, there is not enough here to overturn Judge Netburn’s Order.
But all is not lost for the SEC because there is still a final avenue for the SEC which is to file an appeal to the 2nd Circuit. And here’s where I have to deliver bad news – that takes a long time – here’s how long:
The objection to Judge Torres will be fully briefed on or about August 16. Judge Torres moves quickly on the simple rulings but takes a long time on reasoned opinions where she writes a lengthy Order. So far in the Ripple case we’ve seen her take at least a month and usually longer. So we are not even getting her Order probably until September at the earliest and maybe even later this year. THEN assuming Ripple wins, the SEC has to ask Judge Torres to certify the email issue to the 2nd Circuit and THAT has to be briefed. Which is a problem because even IF Judge Torres realizes this issue is going to mess up her November 15 briefing schedule, she simply cannot push this email issue along fast enough to get all of the SEC’s possible options concluded before summary judgment. In other words, if the SEC wants, which it does, it can put off handing over these emails until past November 15 – maybe WAY past November 15.
Which puts Ripple in a bit of a pickle. Does it say “screw it” and move forward into summary judgment without the emails? Or does it move to continue the summary judgment date to let it get the emails first and delay the case – stunting its growth and pushing back its IPO. Decisions decisions.
But the SEC also has some hard choices because if it moves forward with the appeal to the 2nd Circuit and eventually loses, the SEC risks binding case precedent that allows parties to obtain its internal emails. And that’s NOT case law the SEC wants floating around.
That will be the next big decision for Ripple. Move forward with what we got, or wait until we have all the bullets loaded in the gun. Will be interesting either way.
Thanks for watching and you know it’s not so bad to be depressed if you are depressed with everyone else. Let’s all cry it out.
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