Lawyer Jeremy Hogan Discusses the SEC vs Ripple Pre-Trial Court Hearing: Revelations and Bombshells!

Good morning and welcome to Legal Briefs, crypto edition. Yes, I attended the pre-trial conference for you so you wouldn't have to. Here is some behind the scenes video of me going into the hearing. Okay, I'm ready for the big SEC versus Ripple pre-trial conference and I'm going to attend it now. Quick disclaimer, do not take anything I say as legal or financial advice. If you need financial advice, ask this guy. He's like a bazillionaire and I can barely balance my checkbook. Anyone know his name? A little tip is that every court has a standing order insofar as their courtroom procedures and in this age of video and telephonic hearings in the Southern District of New York, it has its own courtroom procedures and here it is and you can see that the public and media can attend these hearings as long as they do not record them or otherwise interfere. I've heard that a couple people are posting recordings of the hearing online so please be careful with that. We don't want any contempt hearings and so I listened only, took a lot of notes and we learned some very interesting things and I would say one bombshell. So here we go. The first thing I can tell you is that there were probably around 50 to 100 people on the hearing call. The incessant beeping and interruption of people coming in and out and forgetting to mute their phones was very distracting. It also made the 20-minute hearing a little difficult to follow along with. The judge began by acknowledging some law students who were listening in with their professor and they are taking a class on guess what a class on blockchain crypto and government regulation which I thought was interesting. Outside of that interaction the judge was pretty straight-laced and I didn't learn much about her from this hearing. Maybe just a gleam here and there but boy did we learn a lot about the party's positions and how they are going to approach the case and one new and spectacular piece of information that I will tell you about in a minute here. This was the party's first opportunity to present their case to the judge and they only had a couple of minutes each so they addressed all their big issues. The judge started by asking the SEC for its position. I listened closely to how the question was formed and in my notes I highlight that the judge said digital asset or cryptocurrency when addressing the topic. Judge Torres is a Harvard grad. She is very bright. She used both the preferred term of the SEC, digital asset, and also the preferred term of Ripple, cryptocurrency. So she's not showing her hand yet but staying very neutral at least in public. So the SEC made its case first. It was attorney Tenrero and in about three minutes he made his case and it quickly became clear to me that the SEC is primarily going down the road that I've been talking about the last couple of weeks. They are focused on the representations and expectations that were made back in 2013-2015. Representations made by Ripple to purchasers and the expectations of the purchasers. The SEC is going to be focusing on, for example, the attorney for the SEC specifically mentioned that Brad Garlinghouse said he was very very long XRP. That's a quote. And another statement that kind of made it sound as though XRP is like a share of stock in the Ripple enterprise. So think about the SEC argument. The best way to argue what they want to argue that something is an investment contract is to show the court the contract itself. Here it is. This is the contract. That's the strongest argument. Now that's of course the best option but apparently the SEC doesn't have that argument or it's very weak because they are going with option number two which is to show that Ripple talked and marketed XRP like it was a security. Now as we know there are some case authority that the SEC has been making that marketing can reach the level of making a sale a sale of a security but I definitely think option two is the weaker argument from the SEC's presentation. I could tell you that that is definitely the route they're going to go down. And finally regarding the SEC's argument I was surprised that the lawyer did not mention the Kick Interactive case and that's a big problem for Ripple that case because it is negative case authority from the exact same court. Now why you wouldn't mention that even in passing to the judge in kind of your first chance at an opening statement I don't know. I don't know but it didn't come up. Now Ripple's presentation was even more interesting and included our bombshell. I think attorney Ceresny spoke for Ripple and really went down Ripple's strongest arguments and took much more time than the SEC did. First the attorney argued that XRP is a decentralized digital asset and it has been fully functional for eight years now. In fact in the past month the attorney said that there have been 66 billion dollars worth of transactions utilizing XRP and most of them did not even involve Ripple at all. Second the lawyer for Ripple noted that FinCEN in 2015 found that XRP is a currency and that almost every other country in the developed world that has decided the issue has decided that XRP is not a security and that XRP functions more like Bitcoin and Ethereum which the SEC has publicly stated are not securities. Next the lawyer for Ripple noted that Ripple sold XRP as an asset with no promise that it would work to promote XRP and that most sales of Ripple have been into the secondary market and most purchasers had no privity of contract with Ripple or even knew Ripple was involved with XRP. So obviously the Ripple lawyers are talking about things more recently whereas the SEC was focused on things that had happened more in the past. Next Ripple's lawyers did a smart thing which was to address the bad case precedent and I might not understand the technical differences enough but Ripple's argument is that in the Kik Interactive and Telegram cases there was more pooling of proceeds and with Ripple there was no pooling. Now I didn't really understand the difference but it seemed kind of like a distinguishment without a difference if you ask me. It seemed a little weak to me and I hope that Ripple is able to flesh that out a little bit better in the future. Finally towards the end of Ripple's presentation would be where we got very interesting new information. This is the takeaway for me. In federal court you move pretty quickly in discovery you have what are called mandatory disclosures which we will never see unless they are filed in a motion of some sort and apparently what Ripple found out was that as recently as 2019 the SEC was approached by a large crypto exchange or maybe exchanges and asked hey SEC can we sell XRP is it or is it a security so we can't sell it please let us know and the SEC did not tell them no it is a security you cannot sell it listen to that one more time an unnamed exchange went to the SEC and said we are allowing trading of XRP right now on our platform is that okay and the securities regulatory body of the United States did not tell them no and then a year later they sued Ripple saying that XRP is a security wow now that is a big problem for the SEC and I don't know how they get around that because what changed between 2019 and December 2020 when the lawsuit was filed did XRP become a security during that year no if anything it became more like a currency and less like a security as time went on now that little piece of information was found during initial pre-trial discovery by Ripple and it is huge and these are both good lawyers they both know how important this is so it was mentioned again and there will likely be discovery disputes about this very issue as the SEC tries to hide and Ripple tries to find the details of those discussions and what led the SEC to continue allowing exchanges to sell XRP in 2019 and finally and another I told you so in my last video I think I said I smelled a jurisdictional argument coming and yes Ripple is absolutely going to argue that the SEC lacks jurisdiction and we knew that because the SEC and its amended complaint added some facts trying to address the jurisdiction issue adding the fact that sales occurred within the U.S. but definitely as I expected both Garland House and Larson are still going to be filing motions to dismiss the lawsuit against them their attorneys made that very clear and that my friends were the highlights of the pre-trial conference I was hoping to kind of get a better feel for Judge Torres but she was very straight and narrow I didn't really get much feel from her the big news for me is the 2019 non-opinion from the SEC and that's a big problem for the SEC but the highlight of the whole hearing for me was the guy who shouted out when the hearing just ended XRP to the moon that was hilarious made me laugh props to you my friend but remember with this case we are just little kids walking down the street at night trying to get a peek into the bar and see what goes on in that mysterious grown-up world and always see our glimpses of drinks a shadowed face strange lights strange smells and the rest we are left to imagine and that's how a lot of life is and it's that mystery that makes it fun enjoy the mystery my friends and thanks for watching