Jeremy Hogan on SEC's Fizzling Case Against Ripple, Gensler Testimony, C.Gasparino, Bombshell Video!

Some cities earn the rest from crime, but if the forces of evil should rise again to cast a shadow on the heart of the city, call me. Question, how do we call him? He gave us a signal. I received a signal. I received a signal that there was some stuff going down on the Ripple v. SEC case and I'm here to help. Welcome to Legal Briefs. Welcome back and for the record, I am the Michael Keaton, definitely not the George Clooney and wannabe but not cool enough to be the Christian Bale, Batman. So let's get to it and take a look at what has been going on this last week or so and see if we can make heads or tails out of some of the very interesting and maybe even exciting revelations in the Ripple case. Now we are going to start with a wide angle lens and then zoom in today. First we'll take a look at Chairman Gensler's testimony or should I say rehearsed script recital before Congress next. And I hate to use the word bombshell, so I guess I won't because it's kind of click baby. But well, here's the response from the defendant himself to the post that we're going to be talking about that was out on Twitter. Quote, one learning I'll take from this experience, never bet against the tenacity of Twitter sleuths. Close quote. Now ain't that the truth? And we'll see what he's talking about. And then we'll take a look at a tweet from journalist Gasparino, a very interesting tweet, which I think might give us some insight on an important legal issue. And then finally, we will look at important parts of the last two important pleadings of the case. Give me 15 minutes, just 15 minutes, and you too will know the most important things of the last week or two for XRP. And boy, there was some important stuff happening. Okay, let's start with SEC Chair Gensler testifying in front of Congress a couple days ago. What did we learn? Well, Gensler's testimony started off with some hard, grilling questions from Senator Elizabeth Warren. And here is the video of that. This is how we say hello, Wingapo. Wingapo. Large black SUVs will be pulling up at any time to take me away. In any case, the most interesting testimony was elicited by Senator Toomey, who had obviously looked at stablecoins. Now, stablecoins are crypto, which are pegged to the dollar or some other constant value and therefore don't appreciate in value. And looking at U.S. securities laws, Senator Toomey obviously thought that since the value doesn't increase, there can't be any basis for a purchaser to think that the value would increase. And so certainly, stablecoins can't be securities. That's impossible. And so having found a coin that couldn't possibly be a security, he asked Chair Gensler about it and Chair Gensler would not admit that a stablecoin is not a security. And so there was this interaction. And we certainly shouldn't be taking enforcement action against somebody without having first provided that clarity. Well, Senator, this this Congress could change the laws, but the laws that we have right now have a very broad definition of security, including a note, including an investment contract and the like. And my predecessor, Chair Clayton and others, actually put out a lot of guidance with regard to the Howey test. I just got to push back a little bit on that. It is broad, but it's well defined. There is a very specific litany of the instruments that constitute securities, as you know this better than I do. Investment contract is one of them. And there is a court decision that lays out the prongs for what constitutes an investment contract. I'm just saying as a layman who can read English, when I read those tests, stablecoins don't seem to meet that test to me. Maybe I'm wrong. But if I can misinterpret this, I think others could, too. And some clarity, public clarity, I think would be helpful. I see the red light, but I I see the red light. That was the best part of it all for me. He wanted that line of questioning to stop. And there you can see that Senator Toomey is having the same frustration getting a straight answer from the SEC. And that's the same frustration Ripple had in 2019. And that now Coinbase is experiencing currently. So we learned from the hearing that the SEC is not going to budge an inch on the regulation by enforcement model and will continue to sue companies and people instead of providing any form of guidance status quo. Because, of course, as Chair Gensler said last month, I think it's kind of just like reasonably clear. I would say very clear. And that was Chair Gensler from 2021. But let's take a listen to Professor Gensler in 2018. Thanks to Leonidas on Twitter. Even for Ripple and Ether or maybe it's, you know, EOS or NEO or something, you know, but for the big market cap ones, there needs to be clarity in the market. And if the clarity in the market is that they're not securities, they might still be commodities. They might still need to comply with all those laws and so forth. And wow, what has changed in the last three years? And for those of you wondering if that can get into evidence in front of the judge in the Ripple case, yes, there's a couple of different ways that clip can be authenticated and moved into evidence. And yes, it is, of course, relevant to Ripple's fair notice defense. And yes, it is just one crypto professor's opinion. At least that is what the SEC is going to say. But it just so happens to be the professor who happens to be now the chairman of the SEC. I don't know what else to say. You cannot make this stuff up. And that, my friends, is why Brad Garlinghouse loves Twitter. And speaking of Twitter, the digital asset investors research caught the eye of Fox Business journalist Charles Gasparino, who has started digging around a little on the regulation of crypto. And specifically, he's been digging around into this lawsuit against Ripple. And this tweet from him caught my attention. Quote, SEC enforcement sources say that the logic of the agency's case versus Ripple is that the company's infrastructure is still being built out. So XRP, the token which was used to finance the thing, is considered a security while Ethereum has been totally built out for years. Close quote. Now, I'm not a technical guy, but even I can do Google stuff. And I know what happened recently with the Ethereum network. And this is what you see right on the Ethereum.org website talking about the Ethereum 2.0 upgrade. Quote, ETH2 is a set of upgrades that improve the scalability, security and sustainability of Ethereum. Close quote. So the upgrade just happened. Sounds like the Ethereum network is not totally built out after all. But putting aside the factual argument for a moment and assuming Gasparino's SEC source is accurate and it does ring true to me, if the SEC is truly going to try and make an argument that the difference between XRP and Ether is that the Ripple ledger is not fully built out. Now, that is a major shift in SEC strategy and a major admission of a defeat for the SEC. And I say that because remember, up to this point, the SEC has almost desperately been trying to avoid making that comparison between XRP and Ether. Ever since the April 6th hearing, the judge has assumed that part of this case was going to be comparing Ether as a non-security to XRP. And the SEC has gone so far out of its way, it even backtracked on Himmans and the SEC's guidance as to Ether not being a security. So it's helping Ripple with its fair notice defense just in order to avoid that comparison. Now, we know this comparison wasn't part of the SEC's game plan because we've now seen the SEC's interrogatory responses where it was supposed to lay out its technical analysis and not fully built out was not mentioned anywhere in its interrogatory responses. The technical argument for the SEC was supposed to be only that the XRP ledger was centralized or as the SEC says in its formal responses under oath in response to interrogatory number four, quote, the commission averts that certain critical aspects of the XRP ledger were centralized to ripple between 2012 and 2020, including through Ripple's control over several aspects of the XRP ledger, such as the ledger's maintenance, development, governance, functionality, default trusted nodes list and consensus mechanism. Close quote. And that was it. That was supposed to be the entirety of the SEC's technical argument that the ledger was not decentralized. So assuming Mr. Gasparino's source is accurate, we are now seeing the SEC admitting that what it has tried to avoid for most of this litigation is going to happen now that I mean, even that there will be a comparison between the Ethereum ledger and the XRP ledger that was not supposed to happen. And that is not a place I'd want to be if I was representing the SEC because and again, I'm not a technical person, but even I know that the XRP ledger was basically made in 2013 and it's been tweaked and made better since then. And the Ethereum ledger was bid out in 2015 and it has also been tweaked and made better since then, meaning there's no significant difference. So good luck to the SEC's expert in arguing or making up that argument. And our final topic, zooming in on our pending motions, I want to talk with you about the big one, and that is Ripple's motion to compel better responses to interrogatories and what we can see from them. Now, that is the motion to look at out of all of these recent motions we've seen. It's the most important and it is some good stuff in there. Now, interrogatories are simply formal written questions to the other side, but they are super important because they are submitted under oath, the answers, and therefore the answers are admissible in court. And in this case, Ripple filed a motion to compel better answers on August 31st. The SEC responded on September 8th. And now we have Ripple's reply brief dated September 15th, just a couple of days ago. So it's now fully briefed. And just to get this out of the way, yes, I think that Ripple's motion will in large part be granted, but that's not really the most important thing going on here. Stay with me. Because interrogatories and also requests for admissions to a lesser extent, they are tools that lawyers use, which whittle down your opponent's case. It really constricts your opponent's case. Now, it's not as exciting as finding a video of Chairman Gensler saying Ripple had no clarity back in 2018, but it's almost just as important. Under the Howey test, whether something is a security, you really have to prove two important components. First, an investment contract, and second, a common enterprise. Now, the easiest and the best way for the SEC to prove an investment contract is for it to show the judge a literally written out contract between Ripple and a group of buyers of XRP. And the SEC left this option open in its amended complaint. And so Ripple attacked that option in its interrogatory number two, which reads as follows, quote, specify the terms of defendant's contracts, if any, that the SEC contends created an expectation of profits. Close quote. Now, when the SEC saw that question, it didn't want to respond that there's nothing written in any contract between XRP holders and Ripple. So instead, it responded by referring to statements by Ripple outside of any contracts and by referring to Ripple's sales contracts in general. In other words, it didn't respond to the question directly because it wanted to leave open the possibility of arguing that an actual written contract exists, which consisted of an investment contract. And that response is not proper under the federal rules of several procedure rule 33. And this is what Ripple thinks about the SEC's failure to respond. Listen to this quote. The SEC refuses to answer interrogatory number two because defendants suspect a truthful, sworn answer would reveal that no contractual provisions actually bear the weight the SEC intends to place on them. The same is true regarding identification of the common enterprise in which XRP buyers allegedly invested. Ripple interrogatory number 17 and whether Ripple's efforts were necessary for XRP purchasers to receive profits. Ripple interrogatory number 11, among several others. Close quote. And after reviewing SEC's answers to the questions, I tend to agree. The SEC is evidently having a problem properly laying out its case. It can't point to an investment contract and instead is going to rely on statements and other murky kind of half promises made by Ripple. For example, the SEC is relying on a statement by Ripple that it would be a good steward of XRP to mean that there was an investment contract in place between Ripple and you or the XRP holder, that type of thing. So what is becoming clear is that the SEC can't articulate a solid investment contract argument, and it's even struggling with pointing out the common enterprise between Ripple and purchasers. And finally, the SEC can't really say why or how Ripple's efforts affected the price of XRP because they didn't. And so this motion to compel is really Ripple nibbling away at the SEC's ability to argue these key and vital issues other than through innuendo and suggestion. Now, this is good lawyering and it's not glamorous, but it's very important. You really got to hammer these things down. And I think the judge will force the SEC to lock itself into its written positions on this. And that will then be something that Ripple can point to at summary judgment because these interrogatory answers are under oath. And if that happens, and I think it will, the SEC's case will be getting murkier and murkier. If it was a murder case, it would be all circumstantial evidence. And although you can certainly win a case on circumstantial evidence, it surely is a tough road to hoe. So this case has really been high drama up to this point. I love this stuff. And watching all these videos from the XRP people on Twitter and YouTube reminds me of a saying from poet Sean O'Casey, all the world's a stage and most of us are desperately unrehearsed. Thanks for watching. Daddy, I got two balls. I used to have two balls. What happened? I married your mom.