Ripple submits most succint explanation of Hinman issue in XRP lawsuit

The SEC v. Ripple lawsuit, while getting closer to the end of expert discovery, it remains stuck in one particular issue: Hinman.

William Hinman, former Director of the SEC’s Corporation Finance division, gave a speech in 2018 that is increasingly considered the most important evidence in favor of Ripple’s defense. Not the speech itself, but the related notes and emails in preparation.

End of the road for the SEC?

The SEC has spent more than a year trying to convince the Judge that the documents are privileged, to no avail. But the plaintiff continues to submit motion after motion in order to delay the handover.

Many among the public following the case are understandably tired of the endless back and forth and are no longer able to keep track of the dispute.

The latest response by the defendants might, however, clear things up as it contains a preliminary statement that sums up the battle over the Hinman documents.

It might be useful to get up to date as this could be the end of the road for the SEC.

The preliminary statement transcribed below.


In June 2018, William Hinman, then Director of the SEC’s Division of Corporation Finance (“Corp Fin”), delivered a speech at the Yahoo! Finance All Markets Summit offering his view of how digital assets could be regulated under the federal securities laws (Ex. D, the “Speech”). Hinman began the Speech with a prominent disclaimer that he was speaking only for himself, and not for the SEC or its Staff, a disclaimer repeated in writing when the Speech was published on the SEC’s website. In the Speech, Hinman expressed his view that a digital asset that may have been a security when first sold may lose that status as it becomes “sufficiently decentralized.” Hinman did not explain what he meant by “decentralized,” but he pointed to Ether, a digital asset that raised funds through an initial coin offering but otherwise similar to XRP, as one that he considered no longer to be a security. Given the lack of SEC guidance on digital assets, the Speech received much attention. Without further guidance from Hinman or the SEC, many took the Speech to suggest that XRP—the third largest digital asset at the time, after Bitcoin and Ether—was also not a security.

Throughout this case, the SEC has refused to produce documents relating to the Speech. After several rounds of briefing, multiple hearings, three in camera reviews, and multiple requests for reconsideration, Judge Netburn issued three well-reasoned orders compelling the SEC to produce these documents. The SEC argues Judge Netburn clearly erred in finding that the documents are: (1) relevant to the claims and issues before the Court; (2) not protected by the deliberative process privilege (“DPP”); and (3) not protected by the attorney-client privilege (“ACP”). The SEC is wrong on all three counts.

The SEC effectively concedes that Judge Netburn got the law right on these issues, setting out the legal tests in nearly identical terms and citing the same authority. It disagrees only with the Court’s factual findings and the natural conclusions therefrom. But the standard of review for this Objection—for clear error—is at its most deferential. The SEC cannot show clear error on any of the issues. Judge Netburn properly construed relevance broadly to apply to any matter that bears on any party’s claim or defense. The SEC asserts Judge Netburn erred in the application of that broad standard, but, as explained below, these documents do bear on several defenses recognized by the Court: whether the individual defendants knew or recklessly disregarded that they were aiding and abetting offers and sales of an unregistered security; whether Defendants were given fair notice that XRP would be a security; and whether XRP would “ordinarily and commonly [be] considered . . . securities in the commercial world.” Marine Bank v. Seaver, 455 U.S. 551, 559 (1982).

The SEC’s two remaining arguments similarly challenge Judge Netburn’s application of the correct standard to factual findings based on the record the SEC itself developed regarding these particular documents. Judge Netburn found that the DPP did not apply to documents related to the Speech because communications discussing what a speech reflecting the personal opinion of Hinman should say are not an “essential link” in the SEC’s deliberative process. That finding follows well-established Second Circuit law as applied to the record the SEC built. Judge Netburn wise found that the ACP did not apply to these documents because the predominant purpose of these communications was not to solicit or provide legal advice intended to assist the agency in making decisions or acting lawfully and because Hinman’s sworn testimony suggested the advice he sought was non-legal. These conclusions followed the straightforward application of undisputed law to the factual record and sworn evidence submitted by the SEC and Hinman.

In her most recent order rejecting the SEC’s last effort to suppress these documents, Judge Netburn, after affording the agency exceptional process to make its claims, noted the SEC’s “hypocrisy,” because the SEC’s position on these documents has shifted repeatedly over the last year, “suggesting that the SEC is adopting its litigation positions to further its goal, and not out of a faithful allegiance to the law.” Ex. C, ECF 531 at 6. When it suited the SEC, the agency argued that the Speech reflected only Hinman’s “personal views,” and disclaimed that he was speaking about SEC policy. Only after maintaining that position for nearly a year, and after Judge Netburn credited those representations and held that the communications about what the Speech should say are not privileged, did the SEC change its story—arguing now that the Speech was “guidance to market participants.” Obj. at 5.

The SEC’s real objection appears to be that Judge Netburn did not accept the SEC’s invitation to retreat from her findings when the SEC, apparently realizing belatedly the legal implications of its efforts to characterize the Speech as a personal “outside activity” of Hinman, sought to put the toothpaste back in the tube and rely on self-contradictory lawyer argument to avoid the consequences of its litigation strategy. But that was not error; it was the faithful application of law to facts. The SEC’s Objection must be denied.

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