Attorney Hogan on Ripple's Big WIN Against the SEC on Fair Notice! The Major Issue Becomes Clear!.

Welcome back to Legal Briefs. And yes, the SEC bull really hit a wall yesterday. Oh yes, the day we've been waiting for for over a year has finally arrived. And when I tell you yesterday was huge in the Ripple vs SEC case, I mean it was huge. No, I mean huge. Yes, that's about right. Akebono size. Because yesterday morning started with Ripple filing a motion related to expert witness reports. And some of the reports were actually included in the filing. And that was pretty amazing to see and got me quite excited. But then in the afternoon, Judge Torres did a little something, something. She ruled on the defendant's motion to strike the lawsuits against them. She did not rule in their favor, but she did rule. And then finally, finally she ruled on the motion that I had been waiting to see and which is the most important ruling to date. And that was, of course, the SEC's motion to strike Ripple's fair notice defense, which was denied. And in today's video, we're going to touch on the two major filings relevant to Ripple and XRP today. And the video might have to go a little bit long, but don't worry, not too long. As I was taught a long time ago, I will start with my strongest material. We will talk about the fair notice defense ruling first. And of course, the motion to strike it as a defense, which was denied. But I want to also show you today what is turning into the most important battle of the case. And then I'm going to bounce off that important issue to show you the expert witness argument that is brewing. And we'll take a look at a real life expert witness report later on. It's from the SEC and it was filed yesterday and we will analyze it today briefly. Thank you, Judge Torres, for getting this show on the road. Hang on to your hats. Okay, to bring you up to speed in response to the SEC's lawsuit that it sold XRP as an unregistered security, Ripple asserted a defense that it lacked fair notice that its conduct was in violation of law. I call this the fair notice defense because I'm a lawyer and have no originality. Now, the SEC didn't like this fair notice defense because it essentially puts the SEC's own actions on trial. The fair notice defense turned the lawsuit upside down and put the guidance that SEC issued or failed to issue on trial. Now, it also puts a 2018 speech that Director Hinman gave back then at issue because he said in that speech that Bitcoin and Ether were not securities. So, of course, the SEC moved to strike the fair notice defense, which was probably a good move on its part, and argued that there was no legal basis for it. The motion to strike the fair notice defense was filed by the SEC over 10 months ago. And we took a look at it back then, which led to our video titled, It's All About the Fair Notice Defense, in which I predicted this. Prediction, motion to strike denied. Why was I sitting next to a pressure cooker? Oh, that's right. I was implying that this motion put the SEC under a lot of pressure. Back in that May 2021 video, I explained that pressure pretty well, I think, and I said this about what could happen if the fair notice defense survived the motion to strike. In any case, one more super important thing I want you to understand about the fair notice defense. I think Ripple's argument that its sales of XRP were not a security are stronger than its fair notice defense, but I think the fair notice defense might be more important, and here's why. The U.S. follows the rule of stare decisis, meaning that rulings from upper courts control the lower courts. The kick interactive case is from a same level court, so it's persuasive authority, but it's not binding. If the ruling was from an appellate court, which is a higher court, the ruling would be binding on the Ripple court, which is a lower court. So if Ripple wins on the fair notice defense, it becomes persuasive authority for any crypto company the SEC sues from this point forward. If the fair notice defense survives and Ripple wins, the SEC is going to have an uphill battle winning any other lawsuits they bring. But wait, it's even bigger than that. Listen to this. Even if Ripple loses the fair notice defense, they can appeal the ruling. And if an appellate court determines that Judge Torres was wrong and Ripple did not have fair notice, then the SEC is now really in trouble because that ruling is binding on every crypto lawsuit that comes along. For the most part, the SEC will not be able to bring any more crypto lawsuits. That's a smart guy, even though his co-host is Cookware. But what I said in that video last year has come to be true, and the SEC has got some really big problems now. Here's how they are feeling probably waking up this morning with Ripple's fair notice defense alive and well. Okay, without further ado, let's take a look at the order itself because there are a couple of very interesting things in there and one very important paragraph I want you to look at. This is the order, and it starts with a recitation of background facts. And I'm not going to bore you by reading exactly what those are, but I will say this for Judge Torres. If she was a poker player, she would be really, really good because she doesn't give much of an idea of what she's thinking. But there are three things I would like to point out that are very interesting in her order and which stood out to me. And one of those things is key, I think. First, have you ever seen a judge rule on a separate issue in the footnote of an order? Well, I know I hadn't up until yesterday. Yes, this order is so good for Ripple that it wins not once but twice in it. Take a look at the bottom of page 5, it's footnote number 3. And you may not remember, but the SEC tried to sneak in a report into evidence showing and analyzing its 72 prior enforcement actions. And the point of the report was to show that Ripple was on notice of a securities violation because the prior lawsuit should have put them on notice. Well, Judge Torres was having none of that, and here is what she says. Quote, to the extent that the SEC urges the court to adopt this characterization of these enforcement actions, the court rejects such a suggestion because the report's analysis and conclusion with respect to these actions are not proper subjects for judicial notice. Moreover, to the extent that the SEC requests that the court parse each of these filings to determine the underlying facts and legal basis for the enforcement actions and draw conclusions that they are similar to the enforcement action taken against Ripple, the court declines to do so. Close quote. I've never seen a judge do this before, but in that footnote, she is essentially striking the report that the SEC tried to file a couple months ago and saying that she won't take it into account. I've never seen that before. So what does the judge think is important in this case, if not that? Now for that, we have to move down to page 8 and take a look at what she highlights as factual issues that she relied on in denying the motion. And here that is. Quote, as discussed above, Ripple states that XRP's price bears no relation to Ripple's activities. It also asserts that it has not sold XRP as an investment and that it has no relationship with the vast majority of XRP holders. At the very least, these facts, if true, would raise legal questions as to whether Ripple had fair notice that the term investment contract covered its distribution of XRP. So there you can see what the judge highlights as important in her order. And it's the first and third thing which jumped out to me. Starting briefly with her third point, the judge thinks it's important that Ripple has no relationship with the vast majority of XRP holders. All I can say, once again, is that Ripple should thank its lucky stars that John Deaton and 65,000 other XRP holders got involved in this lawsuit. And the judge will hopefully get an inkling of their stories and the fact that almost none of them had any connection to Ripple or had even heard of Ripple when they bought XRP. But let me go back to the very first thing that the judge thinks is important, as I think this might become the issue in the case. Namely, does Ripple's activities affect the price of XRP? When Ripple does something, does the price of XRP change in any way? That's the first issue the judge states was important in her ruling. And apparently, the judge and myself both love this issue, hopefully for the same reason. Now let's Now finally, as to the Howey test, we look at whether purchasers of XRP are reasonably looking to Ripple to create the value and profit for XRP. And I can prove to your honors that this is not true with one simple picture. Now with this picture, you can see that the green line, which represents the price correlation of XRP to Bitcoin, has for most of its recent life moved and been correlated to the price of Bitcoin pretty strongly. Look how strongly correlated the two were from 2018 up until recently. Nothing Ripple the company has done has caused XRP to move as much as the price of Bitcoin has. In fact, the price of Bitcoin was the main driver of XRP's price until December 2020. Now what happened in December 2020? That's right, this lawsuit happened, which caused the price and value of XRP to tumble more than any announcement for Ripple could have ever done. Perhaps the SEC should sue itself then. That's a joke, but it's also clear that what Ripple the company does has almost no effect on XRP pricing. Smart guy, but he really needs to ditch that tie. But as you can see, for myself and also for the judge, the number one issue on Ripple's side in this lawsuit is whether Ripple substantially can affect or does affect the price of XRP. Now this order is my first inkling that the judge agrees with me on that. Maybe Judge Torres and myself are long lost siblings. See the family resemblance? Now in a legal sense, that issue is key because it goes to whether any investors had an expectation of profits from the efforts of others. And the efforts of others part is one of the prongs of the Howey test that must be satisfied for the SEC to win. Because that issue is on her mind as one of her top three questions in the case, it was kind of fortuitous that just an hour before her denial of the motion to strike, Ripple filed a pleading asking the court to strike a late filed expert report from the SEC. Now the motion itself is important, but I'm not going to talk about it too much because even more exciting for me was that we got to see the SEC's and Ripple's expert reports. And these reports are on the very issue that the judge is thinking about, whether Ripple affects the price of XRP. Let me just tell you quickly about how expert witnesses work. Basically, when a lawyer needs an expert witness, he or she calls the expert and tells them about the case. Hey, John, this is Jeremy. I have this section five violation case. I want to see if you can help me with it. Now the lawyer then tells the expert what he or she wants the expert to say and ask, can you say that? Now the expert then either says, no, sorry, Jeremy, I can't say that. Or more likely, yeah, Jeremy, I can say that. I can come up with something. It's going to cost you this much money. OK, that's a bit cynical, but very accurate. And you, my fellow Americans, will be unhappy to know that the SEC was told by its expert. Yes, I can do that. And it will cost you six figures because my lord, the SEC's report is exhaustive and exhausting. And it was very, very expensive. The SEC hired a doctor who has a doctorate degree in economics, which makes sense based upon how much money he charged them for this. And let's just take a look at the contents page of the report itself. And as you can see there, the report is 66 pages long, but it's actually much longer than that since there are another 100 pages or so of appendices and such. Now, I want to give you a little secret about expert witnesses and their reports. And this is how I approach them. And for the most part, lawyers don't really understand what most of their expert witnesses are saying. Have I read all 166 pages of Dr. Metz's report? Heck no. And even if I did, I wouldn't be able to understand it. Now, if I could understand economics and statistics to that level, I'd be a tenured professor at a big university somewhere wearing a rumpled sports jacket, smoking weed in my office at lunchtime. No, that's not happening because I can't understand it. So instead, here's how I evaluate expert reports. First, I look at the summary, which is probably the only thing me or the judge will ever read. And I ask myself, if I can understand what the expert is saying from just the summary alone, that's the question. I need to be able to understand in just a page or two what the expert's opinion is and how he or she arrived at it. If I can understand the expert report in two pages, then I believe a judge or jury will believe it and will think the expert is not just kind of blowing smoke up their behinds. It's my two-page rule. So let's take a look at the SEC's report briefly. Here's what Dr. Metz's report says to be helpful and present the summary of his findings. This is his easy, short summary. Quote, in figure one, I present a summary table that illustrates my findings across 20 different regression model specifications, which in varying degrees account for the price movements of digital tokens like Bitcoin and Ether and other variables. I indicate the cases in which the relationship between news and XRP prices is statistically significant. Close quote. Hmm. I think he kind of lost me at regression model. Did he lose you? But don't worry. He follows that up with a helpful footnote. And here it is. Quote, throughout this report, unless otherwise noted, I shall use the phrase statistically significant to refer to model outcomes for which the probability of occurring under the null hypothesis is 5% or less. Close quote. Thanks for the clarification, doctor. So that's what I focused on when I looked through this report. And I did understand his conclusion and opinion that the price of XRP correlates to could not figure out how he reached those conclusions. And I think that is the problem for the SEC here because of this. The SEC has the burden of proving that Ripple positively affects the price of XRP. A tie goes to Ripple because the burdens on the SEC. And if this issue of whether Ripple substantially affected the price of XRP, so that there was an expectation of profit by purchasers is as important as I think it is, then the SEC absolutely has to knock it out of the park with this report. And well, I'm feeling this report is more of a foul tip. I just can't understand what the guy is saying. And maybe that's just because I'm not that bright. Or maybe it's because I'm just a lawyer. I don't know. In any case, thanks for watching. And please enjoy your weekend and the victory from yesterday. And I will see you back at the grind on Monday. Take it away, Denzel. Never give up. Without commitment, you'll never start. But more importantly, without consistency, you'll never finish. It's not easy. If it were easy, there'd be no Denzel Washington. So keep working. Keep striving. Never give up. Fall down seven times. Get up eight. Ease is a greater threat to progress than hardship. So keep moving, keep growing, keep learning. See you at work.