Att'y Jeremy Hogan Discusses the Hearing in the SEC v. Ripple _ XRP Case and TWO KEY TAKEAWAYS!.

Hello and welcome to Legal Briefs Crypto Edition. Today in the SEC vs Ripple case, Judge Netburn heard oral argument wherein Ripple requested that the court force the SEC to turn over all documents related to internal and external discussions related to Bitcoin and Ethereum being deemed not a security. Now, I listened in for all one and a half hours so you didn't have to be bored to death, but it was actually super interesting so I don't mind. As you may know, the court did not allow any recording of the hearing under threat of criminal sanctions, but I not only broke the law, I actually snuck a video camera into the courtroom just for you. Don't squeal on me and here is some video of the SEC and Ripple lawyer going at it. Yeah, two giant jerks who fight for no reason. It's the perfect trial lawyer analogy. Welcome back and before we get into it, as you know, this is a legal vlog, so I don't discuss what happened today with the XRP price recently or anything related to XRP trading. This is strictly a serious factual legal vlog channel. And also, before we begin, remember nothing I say is legal advice. If you really want good legal advice on the Ripple case, ask this amazing lawyer. This is a trick question, but big bonus points if you can tell me her name in the comments. She is my new hero in a robe and I'm going to tell you why. Okay, let's orient ourselves a little in the litigation because the hearing today was about much more than whether the SEC has to produce documents. And you have to understand how important today's hearing was. Ripple answered the SEC lawsuit with seven affirmative defenses and the most important was Ripple's fourth affirmative defense, which is a fair notice claim, which stems from the U.S. Constitution and is a complete defense to a securities violation. It argues that the defendant Ripple lacked fair notice that its conduct was prohibited. Now, this affirmative defense was then followed by requests to the SEC from Ripple for any documents from the SEC about the security status of Ether and Bitcoin, any emails, any written analysis, transcripts of discussions, communications with third parties. The fourth affirmative defense of fair notice makes the Ether and Bitcoin documents relevant as to Ripple because the pronouncements by SEC executives that Ether and Bitcoin are not securities could have led Ripple to believe that XRP is also not a security. And there is your fair notice defense. So the SEC does not want to provide the documents and also, of course, wants to get rid of what might be Ripple's strongest defense. So what did it do? The SEC moved to strike the fair notice defense, remove it from the case entirely. Now, this is a common legal tactic. And if it's successful, it's a big blow to Ripple. So keep this in mind, because in five minutes, I'm going to tell you what today had to do with the affirmative defense. We're going to tie it all together. And what did we learn from our very first oral ruling on a motion today? First, we heard the judge very irritated that the hearing was being live streamed on YouTube. I think she later even warned that the court deputies were trying to figure out who was doing it and they would be subject to criminal sanctions. It's good that over 500 people were interested enough to try and get on the call. We actually maxed out their system at 500. I think that's a good thing because I get a sense of feeling now that the judge knows and understands how important this case is. She's not treating this case like a run-of-the-mill Section 5 case. Now, the first thing during the hearing that jumped out at me is that the judge again referred to XRP as like other cryptocurrencies. She used the word currencies. She has not changed her language that XRP is a currency. But the second thing that was very odd was that she began with the SEC lawyer. Now, usually you would start these hearings with the party filing the motion, which would be Ripple. But she launched straight into five very pointed questions to the SEC attorney. And her very first question was to first state that the SEC's argument as to why it did not have to give the requested documents was all based on case law. She called out the SEC on that right away. And it's true, the SEC cited a lot of case authority, especially the Kik Interactive case in which the judge did not allow Kik to get the same type of discovery. And what the judge said was strong. You might even say brave. She said, reading between the lines of her questions, that although the authority is persuasive, she does not have to follow it. And the SEC better have an independent basis for not providing the documents. Her very first question pointed out what I now think was a big mistake on the SEC's part, by which I'm talking about suing Brad Garlinghouse and Chris Larson personally. Her first question was, did any of the cases you cite, were there any individuals sued? And the SEC's response was an honest no, and then some awkward silence. And here's the thing. The judge already knew that, that none of the cases had individual defendants. She already knew it. And so she was signaling to the SEC where her mind was already. And this was the SEC's opportunity to change her mind. And I think the SEC attorney kind of blew it. And instead of staying on point with this case authority, the attorney completely veered off point. And he goes to a talking point that the SEC shouldn't have to provide the documents about Ether and Bitcoin because Ether and Bitcoin had no ICO, unlike XRP, which did. And therefore, they are obviously different. Now, this is where I feel very confident in the judge because she saw right through that circular argument right away. She jumped on him. She said, well, then if you were just asking me to decide the entire case, then aren't you? Because if I have to decide before discovery is even finished, how XRP is different than Bitcoin, for example, then I'm in effect making a ruling on the entire case. And she is absolutely right. The whole purpose of discovery is for the parties to get information to prepare their case, not to make a unilateral decision that something is or isn't relevant and then dictate what's discoverable around those assumptions. And it was at this point, ladies and gentlemen, when I knew where things were heading. It was also at that point that I knew nothing. The party said after that absolute something very surprising was going to change the judge's mind on the issue because she already knew exactly how she was going to rule at that 15 minute mark when the SEC didn't zip off a prior case in which individual defendants were involved. You see, absent intervention or questions from the judge, these kind of hearings are like well-orchestrated ballets. The parties move across the floor and orchestrated point and counterpoint. Now, some are more elegant than others. I really think the SEC lawyer lost the beat there at the beginning, although he finished relatively strong. Ripple's lawyer was good, good, but he was no Matt Solomon. The only really shocking dance move was when the Ripple lawyer almost suggested that Jay Clayton was in bed with the Ethereum people. I think he said that Clayton embraced Bitcoin and Ether. And for a second, I thought he was going to take it to that next level. And then he backed off right at the last second, almost. So after 90 minutes, the judge made an oral ruling on the record. That's the first of this court case. She ruled that the SEC must search for and provide all documents related to XRP, Ether, and Bitcoin discussions wherein any third parties were involved. Now, I expected that. The next part of her ruling was a bit of a surprise to me. In the U.S., we have a fairly strong deliberation privilege for government work. The deliberative privilege is kind of an offshoot of executive privilege that you might have heard President Trump raise during the two impeachment proceedings he was involved in. The idea is that if people in the government can't freely communicate about ideas, plans of action, and that sort of thing without being worried about someone using their thoughts and ideas against them later, we inhibit the function of government. And that's the privilege. So I thought the judge was going to order that no documents with thought process be produced. And she partially did that, but only partially. What she ordered is that no informal things like emails, etc., be produced in regards to Ether and Bitcoin. So if, for example, an SEC employee sends an email to his work friend about Hinman's speech saying that Ether is not a security, that is not discoverable. But if there are more formal communications, memos, that type of thing, then those are discoverable. Now, that was the order, and Ripple got more than I expected. But there are two important things at play beyond the motion being granted that you have to know about. First, with this order, the SEC is not only going to have to produce many documents, but also have to produce what is called a privilege log of documents. Now, it's just a summary, but Ripple will be able to see exactly what those documents are that are out there, all of them. It kind of looks something like this. It looks like this, except this would all be filled in, so you'd even have the people that are creating the document and who it's being sent to. So even not having to produce the exact documents, Ripple will still be able to get a feel for what emails, etc., are out there, and those can be used to find additional leads for more information or even at deposition. Now, if there is a smoking gun type document out there, in the next 30 days is when the SEC will look to get out of this litigation. This also conforms with Getzler getting on board, so if that is going to happen, look for that sometime in mid-May. And the second big takeaway from this hearing is what we discussed at the beginning of the video. Judge Netburn already pretty much knew how she was going to rule going into this motion, and you can bet that Judge Torres already pretty much knows how she is going to rule on the motion to dismiss Ripple's fair notice defense. Judge Netburn is not going to order the SEC to spend hundreds of hours going over tens of thousands of documents relevant only to Ripple's fair notice defense if she knows that the entire defense is going to be thrown out next month. Repeat, I would be shocked that the judge would order production of all these documents if the court was going to rule in favor of the SEC next month on its motion to dismiss Ripple's fair notice defense. And it's that hearing and that defense that are crucial to Ripple, and this is the first evidence we have that the judge is not going to throw it out. Now, could I be wrong? Yes, but remember, I'm never wrong, and when I am, it's always someone else's fault. So yes, motion granted for the most part, but much more importantly is what it signals for a possible early resolution of the case and for Ripple's fair notice defense, in my opinion. Thanks for watching, and yes, this was an important victory, but as they say, pride comes before the fall. Stay humble and stay safe.