The attorney-client privilege clearly stood in the way and provided Ripple with a much-needed win.
The court has denied the SEC’s motion to compel Ripple to produce memos discussing XRP sales with the firm’s lawyers – a motion that Ripple Labs argued went against the rules of attorney-client privilege.
That was precisely Judge Netburn’s rationale for her ruling as attorney-client privilege is designed to “encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.”
The Judge, however, allowed the regulator to renew the same motion in case Ripple “raises its beliefs or relies upon its privileged communications in support of its fair notice defense.”
The battle over legal advice, which was heating up the courtroom this month, is now over. The SEC’s principal argument was the “fairness doctrine”. At an hearing, the SEC attorney Jorge G. Tenreiro said Ripple’s lawyers knew what the law required and that it could be a security.
“Their lawyers knew from the very beginning, and to now come and say to the court, “nobody knew”, and leave us unable to rebut that by showing all of the advice that they got, not just what they selectively disclosed to third parties, is fundamentally unfair and fundamentally against the fairness principle as recognized in this circuit”, said Mr. Tenreiro.
The attorney-client privilege clearly stood in the way and provided Ripple with a much-needed win. An important one as the defendant rests its affirmative defense on the basis that the SEC did not provide fair notice that XRP could be deemed a security, especially after a string of events that would suggest otherwise.
“In support, it cites to the SEC’s eight-year delay in pursuing enforcement action against Ripple for its alleged securities violations — even after XRP was listed on over 200 cryptocurrency exchanges, billions of dollars of XRP sales transactions had taken place, and Ripple had entered a settlement with the U.S. Department of Justice and FinCEN that described XRP as a ‘convertible virtual currency”, the Judge wrote in the ruling.
A Ripple win on the Fair Notice defense “could save the industry from the SEC”, attorney Jeremy Hogan has recently stated. “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 lawsuit they bring.”
“But it’s even bigger than that. . . 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.”
It is no secret that Ripple intends to go public once the lawsuit with the SEC is over, but CEO Brad Garlinghouse renewed his plans in an interview at the Consensus 2021 event.
“I think that the likelihood that Ripple is a public company is very high at some point. I think in the middle of an SEC lawsuit, you know we need to get that closed out and the SEC approves an S1, it’s easier to do that after you have closure and clarity and that regulatory certainty we have been seeking for so long.”
SBI Group chief Yoshitaka Kitao, who has a seat in Ripple’s board of directors, has recently expressed the same views on an earnings presentation call, where he added that the IPO would pay off their investment.