Lawyer Discusses SEC vs. Ripple Feb. 15 MAJOR COURT FILING - Insights, Weaknesses and....Settlement

Hello, this is attorney Jeremy Hogan and welcome to another crypto edition of Legal Briefs because I promised I would get back to you when the SEC versus Ripple case management order came out and here it is hot off the presses. Okay, today we are going to go through the case management order which will give us a better idea for time frames and hopefully time frames for resolution of the SEC lawsuit and then we are going to go through the nine-page letter that the judge required the parties to provide to her prior to the February 22nd pretrial conference and in that letter the whole cases are laid out. There's some really good stuff in there for Ripple. I was actually really pleasantly surprised when I read that letter and there's some other things about settlement that you're going to find very interesting. We're going to go through that. Quick disclaimer, do not take anything I say as legal advice. If you really want a lawyer to rep you against the SEC, hire this guy. I want to be clear, I do not respect the SEC. I do not respect them. I heard that guy's kind of smart. So just to recap, the SEC lawsuit was filed just before Christmas 2020 and the first scheduled hearing with Judge Torres is on the 22nd. The hearing is by telephone and normally these are in open court which is open to the public so I could go in there and sit down if I wanted to go to New York for a little vacation and I'd love to listen in for you on the telephone but I don't believe the courts allow you because you clog up the phone lines. Anyways, the judge's initial conference order required the parties to jointly agree on certain deadlines and the attorneys have to meet usually in person and agree on the dates and that's what we're looking at in the case management order and this is always how it's done in federal court, very standard stuff. But in this case, which is a little bit different than the way it's done down here in Florida, the judge also required the parties to provide her a letter which is supposed to outline four things and I'm going to take you through those four things in the letter that they provided. That is the most interesting thing and we are going to link to that letter down below in the vlog so you can go and look at it yourself. I highly recommend it. You're going to find some really interesting stuff in there. Okay, what we're going to look at first is the case management order. This is where the attorneys are supposed to get together and agree on certain dates and deadlines where certain things are going to get done by and I would like to say I told you so because the dates that I had mentioned in my previous vlog are pretty much spot on. So let's go ahead and take a look at this order now in some detail. So, first we'll start off with paragraph one. The first thing that it says is that all parties do not consent to conducting all further proceedings before a magistrate judge. A magistrate judge is almost never agreed to if it's an important case and I'm not surprised that they did not agree to it in this case. Paragraph two, this case is to be tried to a jury. Now, we've talked about this before and you're entitled to a jury trial and you always ask for a jury trial but my opinion and I'm looking at the Kick Interactive case, I'm pretty sure that this case is going to be decided by the judge at summary judgment except as to the individual defendants but as to Ripple Labs itself, I'm confident we're looking at summary judgment here. Okay, then let's move down to paragraph five. All fact discovery shall be completed no later than July 2nd of 2021. That is a very tight time frame. Fact discovery is request for production of document written questions, depositions. Now, you're going to see in the letter from the parties to the judge, the SEC is wanting to take more than 10 depositions and depositions are usually half a day or a full day depending on how complicated things get or they can go for more than a day. So, they want to take 10 depositions and they all have to be done before July 2nd but the most important day in the case management order is paragraph seven where it says all at the top where it says all expert discovery shall be completed no later than August 16, 2021. So, that's really the last date for discovery and what the parties are saying here is that on August 16, 2021, all discovery will be completed and then they're going to move into their motion practice. So, after August 16, 2021, you would expect them to file their motions for judgment. A motion for summary judgment is basically a motion that's asking the court or the judge herself to make the decision on whether XRP is a security or not. I would expect if all discovery is completed on August 16 of 2021 that we would have motions for summary judgment filed in September and possibly heard in October and that is the exact time frame I gave you in my previous vlog. Okay, next, let's take a look at the more interesting of the two documents that were filed today. The letter to the judge. Now, I've never seen a nine-page letter to the judge before but I've never been involved in a multi-billion dollar case before. So, I guess this kind of makes sense. So, let's go ahead and take a look at the letter to the judge. Now, the judge requested the parties provide and discuss with her four things. This is the judge's first look at this case. So, this letter is extremely important. The case could be won or lost in the contents of this letter. So, let's let's take a quick look and let me point out a couple things that I think are interesting. First, let's look at number one. This is the first thing the judge wanted the parties to do. She wanted the parties to give a brief description of the case and the factual and legal basis for claims and defenses. Now, the SEC gets to start as the plaintiff and the SEC describes its case in the couple paragraphs that are on page one, two, and I believe into page three and yeah one, two, and three are the SEC's case. Now, I thought that the SEC's description of the case was pretty vanilla. I've only really had a chance to read it one time through but I was a little bit surprised that they were so they didn't really provide a lot of facts and I'm going to give you some examples here. So, on page two of the letter, this which is the first full paragraph, it says, first, the complaint alleges that the defendants violated sections 5a and 5c of the Securities Act and then the most interesting paragraph in here I think is the second full paragraph. The complaint further alleges that defendants sold XRP as investment contracts under the Howey line of cases primarily because the economic reality of XRP and the way defendants marketed XRP made a purchase of XRP in exchange for cash or other consideration and investment in a common enterprise. So, here they're talking about the heart of their case really. This is it. Was there an investment contract or not and what do I see when I read this paragraph? There are no facts. So, it's really weak. I don't, it's all conclusory. They should have at least included, they have some facts because I remember it from the complaint but none of them are in here and I think this is kind of a weak statement as far as a first statement to the judge. Next, the SEC addresses the defendant's defense in this case and that is on page two at the bottom, the last paragraph where they say, quote, defendant's principal response to these allegations is to affix a self-serving label to XRP, quote, currency, close quote. Now, it's good to address your opponent's defenses in a lawsuit but this is a very weak defense if it is a defense at all. The fact that Ripple calls XRP a currency is not the heart of its defense and the SEC spends one, two, three, four paragraphs of very, I mean this is very pricey real estate in a nine-page letter. They're only allowed really three pages here to give their side of the case. They spend like a whole page just talking about that Ripple has called XRP a currency and this is just a red herring. I think it's really misplaced time in their letter to the judge. This is the case, this is the time where they get to make their case to the judge and they spend three or four paragraphs talking about what Ripple used to call XRP and my response to that would be really it doesn't matter. A security is a security no matter what you call it. That's the heart of the Howey test and here the SEC wastes so much time talking about what Ripple used to call XRP currency, not currency. It doesn't matter to me. It really doesn't matter and I think the judge is, it's not going to matter to the judge either so this is just wasted real estate. Okay, let's go to page four of nine. This is where Ripple gets to lay out its defenses to the judge for the very first time and I think they did a really good job, much better than I expected. Actually, I'm very impressed by what they put in the letter. So first off, let's start at the top of page four, Ripple's description of its defenses. In talking about whether XRP is an investment contract, Ripple keeps it simple, quote, they are not. XRP is a digital currency like Bitcoin and Ether. Two other digital assets that the SEC has concluded are not securities. I like the fact that they put that in there. Now going down to the third paragraph where it says, first, XRP is a digital currency or asset. The SEC's allegations that Ripple's sales of XRP constituted investment contracts lacks any legal or factual basis. So basically, they're calling out the SEC for not having any facts in its position statement. The evidence will show that Ripple has sold XRP as an asset with no promise of future services or profits. To call such sales investment contracts distorts the statutory language beyond recognition. Indeed, in many instances, the people who bought XRP did not even know that Ripple was the seller because there were sellers of XRP other than the defendants and open market XRP sales are generally anonymous. So I think that's a great point that after Ripple sold XRP, it was then sold downstream. So how can it then be an investment contract? The next paragraph, Ripple addresses the Howey test, and it makes a really good point here. And at the bottom of page four under Howey, the SEC must show, among other things, that Ripple and purchasers of XRP entered into a common enterprise dependent on Ripple's managerial efforts. The SEC cannot do so. So, again, Ripple is calling out the SEC on the lack of facts in its complaint. And then finally, I think Ripple has the perfect response on page five to the three or four wasted paragraphs from the SEC that talk about what Ripple called XRP, that they called it a currency or they didn't call it a currency, where they say at the top of page five, the SEC's only response is that Ripple has merely slapped a label currency on XRP and ignored the economic substance of XRP as an investment contract. That is flatly incorrect. First, it is not Ripple that labeled XRP as a currency. It was the Department of Justice and FinCEN that did so in 2015. Boom. I love that. I think that just destroys half of what the SEC said in the first couple paragraphs if it's part of the letter. But let's take a look at page seven. And this is where things, I think, get even more interesting because typically the judge does, and the judge did in this case, ask for what's the settlement prospects. Usually the judge wants these cases to get settled. The judge can't try every case in front of her, so the judge wants to talk about settlement. So the parties have to come up with a statement as to the prospect for settlement. And that may be the most interesting paragraph. Quote, counsel for the parties have met and conferred and having previously discussed settlement, do not believe there is a prospect for settlement at this time. Fair enough. Finally, this is where it gets very interesting. Defendants agree with this statement, but note that previous settlement discussions took place under a previous administration and were principally with relevant division directors who have since left the SEC. Let's take a look at that one more time. Defendants agree that they can't reach a settlement at this time, but they would note to the court that all of the settlement discussions took place with the previous administration division directors. So in my previous vlogs, I talked about how Gensler is coming in and I kind of did a little speculation that that might be the best time to get this case settled. And I believe that that is what Ripple is alluding to here. They're going to be dealing with a different enforcement director. They're going to be dealing with a different SEC director. And I think that's where they're heading with this. So my summary of the case management order is that the timeframes I had laid out in my previous vlogs are spot on. Also, I was surprised in the letter that how weak the SEC's position is. I believe that they wasted so much time on talking about what XRP or what Ripple was calling XRP, that they really wasted an opportunity to provide the judge with some facts that the case would be based on. And I really thought Ripple did a good job of addressing that. But again, and I want to go back to paragraph three of the letter, the biggest takeaway is the discussion of settlement. Ripple makes sure to point out that it had failed in negotiations with the previous administration and hinted that it was waiting for the new SEC directors to come into power. This would be consistent with Ripple believing that Gensler or the new enforcement director will bring new settlement potential to the table. And this is consistent with what we talked about in my last vlog, the idea that the current SEC directors are holding up the settlement, but that it could very well happen after Gensler and his people get into power. Wait for that and let's see what happens. So thanks for watching. Always remember to keep your promises and always keep your secrets. Everything else is optional.