Attorney Hogan is BACK as the SEC v. Ripple Case Enters HELL WEEK! And Gensler Ignores Twitter Q's..

Welcome to Legal Briefs. I'm back. Hello, this is attorney Jeremy Hogan, back with some important info for the SEC vs Ripple case. I don't know if that opening montage was for me or for the price of XRP, but we are both back. Actually, I was really enjoying my garage ban, but then my favorite Ripple attorney, Matt Sullivan, filed something in the case. Yes, I was really loving the garage and then attorney Sullivan had to go and file a motion and I got unnaturally excited about it. And well, here I am. I'm a little sad because my band was actually coming along quite nicely. We got one song recorded. It's a little dark and it's self-titled. Check it out down below in the description. In any case, this upcoming week is very important for the SEC vs Ripple case. And I'm here to orient you to what is going on and what to look out for. And also, we can now see how the SEC is going to be approaching a very big aspect of their case. And I want to share that with you. Also, I have been keeping tabs on all the United States legislative stuff going on in the crypto world, but I just couldn't get myself to talk about it because it's too depressing. I mean, when Senator Ted Cruz is the voice of reason on an issue, you know something's gone wrong. So I'm going to save that for another time. But finally, at the end of this video, I want to show you a very interesting tweet I received from a commissioner on the CFTC, which is the Commodities Commission, and an interesting tweet I did not receive from SEC Chairman Gary Gensler. Now, first, to orient ourselves in space and time. Now, this handy graphic is from Philon Law or Philon Law. I don't know how you say it. Thank you, Jim, for the graphic. So as you can see, fact discovery concludes August 31st and expert discovery ends on October 15. That's at the bottom of our graphic. Fact discovery consists mainly of document discovery and depositions. And we've seen some of these battles play out over the last couple of weeks. Expert discovery is different. By August 31st, the parties will have to disclose which experts they are going to rely on for more technical testimony. For example, in a personal injury case, the expert witnesses will be the doctors who will testify about the injury. Now, these are witnesses with special expertise who are allowed to provide opinions to the courts. And in the Ripple case, you will likely see technical experts who can give opinions on the XRP ledger and talk about use cases, decentralization and such. Guys like this guy, Quincy Jones. In other words, expert discovery is where the lawyers hire people way smarter than them to talk about issues they don't really understand to a judge who will understand it even less. So that's where we are at the end of fact discovery and going into expert discovery. And I was quite honestly surprised that we got these two motions filed as late in There in our graphic, you can see that the SEC filed a motion to compel Ripple to produce internal Slack communications and Ripple has to respond by Monday the 16th. And then Ripple filed its motion to compel production of SEC's internal memos and such. And the SEC has to respond to that motion by Tuesday the 17th. And this is all cutting it really close because once the 31st passes, August 31st, these issues are over. So I expect this to move very quickly this next week because I expect the judge to want oral argument on these issues. And so in order to get it briefed and have oral argument, hang on to your hats because we only have a couple of days left. The reason I'm surprised is that this case has been in discovery for over six months now with documents going back and forth, depositions being scheduled. You want to have all of your documents in hand when deposing witnesses. And as we can tell from the filings, the SEC has actually taken depositions without having the documents it wanted to ask about. And that is always a mistake, especially in federal court where you are not likely to get a second shot at taking the deposition. Okay, in any case, let's look at the filings. I'm not going to go into who will win on these motions today because we haven't seen the responses yet. But I did want to tell you what the issues are, why it's important, and what we can see as far as the strategy of the sides from these motions. We can read into them a little bit. Let's start by taking a look at the SEC's motion. And the SEC is trying to get Slack messages from Ripple. I've used Slack before and I generally hated it, but it's a message and task organizer and tech companies love it. And it really could be a treasure trove of information for the SEC because it's all centrally stored. Look at Ripple's motion, quote, plaintiff SEC will seek an order compelling defendant Ripple Labs to search and produce relevant communications between Ripple employees on Slack, close quote. That's what the SEC wants. But why do they want it? And what can we glean from the motion? Now, it's super interesting, these two motions, because it really shows a dichotomy as to how the parties are approaching the case. The SEC is trying to build a case that XRP was sold as an investment contract, and therefore it's a security. What I am seeing from this latest motion and also from the request for production that the SEC gave Ripple is that the SEC is going to try and stay away from the technical issues of how built out the ledger was, was XRPL decentralized and all of these kind of issues. I can tell that because there's almost no questions in this motion or in the formal document requests related to those technical issues. Now, why is that? Probably because the SEC realizes that is a losing argument for them. Thinking about former chairman Clayton's analogy of selling tokens to a laundromat. And if the laundromat isn't built yet, the tokens are a security. But if the laundromat is built, you have a commodity because those tokens can be used. And by that definition, the SEC is going to lose, especially as to more recent sales of XRP. So instead, the SEC is going to attack from a marketing angle. The argument here is that Ripple marketed XRP like a security, treated it like a share of a stock more than a commodity, tried to manipulate XRP price, all of those types of things. This is an attack from the flank, not the strongest argument, but it might be all the SEC has. Now we first get a hint of this in the motion to compel production of Slack documents where the SEC in footnote three on page three lists who Slack messages it wants searched. The Ripple employees it wants searched include, you can see there in the footnote, it includes three members of Ripple's marketing team, members of Ripple's XRP market team and members of Ripple's finance team. Now, what does the marketing team have to do with whether XRP is a security or not? Absolutely nothing. But it has everything to do with how Ripple marketed and treated XRP. And even more telling, let's look at the SEC request for production to Ripple, which is attached as exhibit D to the emergency motion. Now, there are only 38 total requests, and many of those are kind of generic throwaway requests. But out of the 38, at least 12 or 13 of them are directly related to marketing efforts or Ripple's kind of trying to be an influence on XRP and its price. A good example is request number six, which requests, quote, all documents concerning Ripple's efforts to promote purchase of XRP by retail purchasers. So from those types of requests, you can see what the SEC's tactic will be in its final motion for summary judgment. It's going to argue that Ripple marketed XRP, used XRP as kind of a stock option in order to get business partners to work with them and to raise capital and otherwise treated XRP like a stock, even if technically it wasn't. And let's compare that with what strategy Ripple is applying. Now, as you may be aware, back on April 6th, Ripple went to a hearing with the judge and won the right to receive formal internal correspondence from within the SEC about whether XRP and either were securities. And apparently to date, the SEC has not produced one single document to Ripple. So finally, after all this time, Ripple filed a motion to compel production of the document. We've been waiting a long time for this, and it was filed last week and by the one and only attorney Matt Solomon. And here is the argument. Looking at the bottom of the second paragraph, quote, discovery in this case has confirmed that during much of the same period, market participants and the SEC itself were still uncertain about whether or not digital assets generally and XRP specifically should be subject to regulation under federal securities laws. Now, if you own XRP, you should say a short prayer that this is true because this would mean that Ripple has obtained evidence. Maybe they've deposed someone at the SEC or they've obtained documents that say that the SEC itself wasn't sure whether XRP was a security. Boy, would that be nice. But putting that aside for a second, this highlights how each side is putting their case together. The SEC is going to stay focused on what Ripple did. How did it market XRP? How did it make money? Did it worry about and try to manipulate XRP's price? And Ripple is going to focus on what the SEC did. Did it provide clear guidance to Ripple? Or better said, did the SEC even know whether XRP was a security itself? Apparently, there's evidence that it didn't, at least until December 22nd, 2020, which of course is when the lawsuit was filed. And what we don't know is how good the documents or depositions that each side get will be. Only when we see that will we know how strong each side's argument is going to be. But these motions and hearings of the next two weeks are very important because these are how the SEC and Ripple will get the bricks which with the build their case. And finally, something very interesting I wanted to show you from the world of Twitter. Now, I've only been on Twitter since January, so I'm kind of a newbie. Not for the faint of heart, y'all. And there's a lot of policy issues surrounding U.S. securities laws discussed on Twitter, sometimes nicely, sometimes not. But there's something broken at the U.S. Securities Commission. And I think this highlights it. And it begins with the chairman of the SEC, Gary Gensler, talking at the Aspen Forum. And listen to this when he's asked about basically lack of clarity in the crypto world in the U.S. Roll it. Now, usually there's a handful of people at the center of these XYZ project or ABC project. I'm not going to use names. There's usually a handful of entrepreneurs and technologists that in effect, the investor is hoping those people do well. So that means anticipation of profits on the efforts of others. I think it's kind of just like reasonably clear. I would say very clear. Now, if you think that was awkward, go watch the video from the 35th to the 50th minute. We'll put it in the down below in the description. Now, if he was a witness on the stand during that interaction, it's what I would call a disaster witness because it was horrible. But anyways, what was disingenuous was when he said that the law is very clear. Now, he knows that's not true. We know that's not true. So why did he say that? So I couldn't let it go after watching that clip. And so I took to Twitter because that's the lazy way to do it. And I asked Mr. Gensler a very simple question. We know you understand Ethereum very well. We also understand you recently said that U.S. securities laws are very clear. Therefore, the millions of Americans who own Ether would like to know the answer to a simple question. Is Ether a security? Yes or no. And I tweeted that and I believe almost 7000 people liked it. And so I waited and waited. And but the truth is, I knew there would never be an answer first because Mr. Gensler's lawyers has probably instructed him not to answer questions about specific cryptos, but also because I asked what at trial I call a no good response question. It's similar to asking the question, are you lying now or were you lying then? I mean, there's just no good way to answer it. If the answer is yes, Ether is a security. Well, then why haven't you sued it yet? If the answer is no, then he is greenlighting similar cryptos. If he tries to waffle with a maybe, then he is admitting that there is no clarity. And really, the purpose of the question wasn't to get an answer, but to highlight an inherent problem with how the SEC is set up and how it regulates crypto. Because the truth is that the way the SEC does things worked fine in a world where companies go public and sell parts of the company as shares. And some companies try and get around disclosures by hiding that they are really selling shares of their company. But with crypto, you have a different scenario. In the crypto world, Ford doesn't just make cars. It literally makes steel and oil out of nothing almost, and then makes cars from the steel and fuels it with the oil that it made. Now, at the same time as it's doing that, it's selling the steel and oil to others for their use. Now, is the steel and oil a security or is it a commodity? The answer to that question is anything but very clear. So the truth is that Mr. Gensler can't answer that simple question, yes or no, even if his attorney would let him, because the answer is very much a maybe. And so what you have is a regulator which only really has a hammer, and the hammer has worked for a long time. But now it seems that the SEC is not willing to recognize that the regulation by litigation model doesn't work in the crypto world. And that's especially true where it takes years before enforcement actions are brought. In the eight years before enforcement was brought against Ripple, you have millions of U.S. citizens who have put in time, energy, money into projects involving XRP, and now all that time and energy are at risk by the very entity that is supposed to protect them. The protector has become the harmer. Now, it's a shame, and there's really no reason that the head of the SEC shouldn't be able to go down the list of the top 20 cryptocurrencies and say, yes, security, no, not a security. That would be true investor protection and true clarity. But not to end on a negative note, and a good surprise, Commissioner Brian Quintez of the U.S. Commodities Commission responded to my little tweet and said, no, either is a non-security commodity. It is not a security. So props to him for responding. And if you have a free moment, tweet to Mr. Gensler politely. Do say, good sir, is Ether a security? Yes or no? And maybe someday we will get an answer. Thanks for watching. And remember, sometimes in business and in your life, you have to be brave and say, this isn't working, and it's going to suck for a while, but I need a big change in how I've been doing things. And then make that change. I want to show you a very interesting tweet I received from a commissioner on the CF. Maybe that'd be a blooper. Can't say commissioner. Cohesioner, cohesioner. And that is always a mistake. I'm a fake. Oh, because I wasn't sure whether Ripper. Come on.