The Securities and Exchange Commission (SEC) must surrender an email with a draft of former director William Hinman’s speech on whether ether is a security to Ripple in an ongoing lawsuit the regulatory agency filed against the crypto startup, a judge ruled Thursday.
The SEC sued Ripple and members of its leadership at the end of 2020 on charges it sold and continues to sell the XRP cryptocurrency in violation of federal securities law. The agency and Ripple have been involved in a protracted back-and-forth over what sort of documents must be made available through the discovery process, with Ripple seeking a number of documents detailing internal SEC communications and policies.
SEC attorneys, for their part, have claimed that these documents contain staffer deliberations, and therefore are protected against discovery. District Judge Sarah Netburn, of the Southern District of New York, ruled that some of these documents are indeed protected, but ordered the regulator to turn over others, including an email with Hinman’s speech and some notes from meetings between SEC staffers and third parties that are not Ripple.
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An email of a draft of a 2018 speech by former Director of Corporation Finance Hinman is included in the list of documents to be surrendered. Hinman gave the speech in June 2018, telling the audience at a conference that in his view, ether was not a security.
The speech was seen as pivotal for the crypto industry, given the first 60 million ether (the native token of the Ethereum blockchain) was sold to raise funds for the Ethereum Foundation. Ether is now commonly seen as a commodity in the U.S., with the Commodity Futures Trading Commission overseeing derivatives products based on the cryptocurrency.
Hinman’s speech reflected his own views, he said at the time, a point the judge referenced on Thursday in her ruling.
“The personal views of agency employees are not protected by the privilege unless they bear on ‘the formulation or exercise of policy-oriented judgment,’” the judge said in a 23-page ruling. “…Accordingly, emails concerning the speech or draft versions are neither predecisional nor deliberative agency documents entitled to protection.”
While the email with the draft speech must be turned over, a separate email sent by the Office of the Chief Counsel for Corporation Finance the day before his speech does not need to be turned over, the judge wrote.
“The documents related to SEC staff’s legal analysis of XRP, contained the SEC’s staff preliminary views during the Division of Enforcement’s investigation into XRP and did not present a recommendation to the SEC,” she said.
These documents were prepared for the investigation into XRP, and therefore qualify as “the kind of pre-decisional and deliberative legal analysis the deliberative process privilege protects.”
The SEC also does not have to turn over notes from meetings between SEC staffers and Ripple, as well as interagency discussions, the judge ruled.
Other documents the SEC will keep privilege over include communications between SEC crypto czar Valerie Szczepanik and a U.S. Treasury Department office, as well as a presentation she made for former SEC Commissioner Michael Piwowar.
Overall, Ripple sought access to 14 entries and three additional documents.
“The SEC is further ordered to review its privilege log and produce, in full or in part, any documents previously withheld based on the privilege that would be inconsistent with this order,” Judge Netburn wrote.