Ripple stands by as Judge crushes SEC at XRP lawsuit hearing

The highly awaited hearing ordered by Judge Sarah Netburn mainly to force the SEC to clarify its position on the ‘infamous Hinman’s notes and emails’ took place yesterday.

As expected, Judge Netburn exposed the several and contradictory takes by the SEC in regard to the speech as the plaintiff now argues the notes and emails are protected by attorney-client privilege, after being denied the deliberative process privilege argument.

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At the hearing, Judge Netburn went straight to the point and asked the SEC “help me understand what legal advice Director Hinman received and for what purpose it was given. What was the legal advice for? What was he seeking that advice for?”

The SEC explained the legal advice regarded the application of securities laws to digital assets for his speech, to which the Judge reminded that the court had previously accepted the SEC’s position that the speech was his own personal views and not SEC guidance. “Do you stand by that statement today?”

The SEC attorney then reframed it by saying that even if it was his personal views, “he still sought legal counsel about the legal issues he encountered in that speech.”

Judge Netburn then pointed to a tension in the SEC’s position and reasoning as the SEC’s legal staff works for the SEC, which makes the agency the client, but that the SEC distanced itself from Mr. Hinman’s speech. “I’m having a hard time reconciling attorney-client privilege with something that the SEC said is not official guidance […] I can’t be sure what legal advice could be given in the development of a speech that is personal opinion.”

The SEC attorney insisted that the speech was not the agency’s but Hinman’s in his capacity as Director of Corporation Finance, to which the Judge reminded that the SEC has previously argued he wasn’t speaking in his capacity as Director of CorpFin.

The plaintiff took a moment to give a proper answer, that Hinman sought legal advice as Director of Corporation Finance, seeking information only available to him in his position, with the objective of providing his personal views in the 2018 speech.

The Judge was unconvinced and accused the SEC of distancing itself quite definitively from this speech “for the purposes of cloaking this material”. She then sarcastically asked the SEC to “pull up the speech and show which part is the SEC and which part is his personal views.”

The SEC attorney reiterated its previous stance, that even if the speech included Hinman’s personal views, “it doesn’t change that he sought legal advice, and couldn’t have given this speech as a private citizen and couldn’t have accessed this info without being Director of CorpFin.”

This statement led Judge Netburn to ask if the SEC is now taking the position that the Hinman speech reflects the views of the Division of Corporation Finance, to which the SEC attorney replied affirmatively.

The somewhat frustrated Judge doesn’t “understand the caveat” as if the speech is guidance from the CorpFin division, then anyone could have given the speech. However, Hinman gave it and it was his personal views. “Every time I ask you if it’s CorpFin’s views, you say it was his.”

The SEC, however, maintained its position that Hinman sought advice that he could only get as Director of CorpFin, which makes him the client and so the notes and emails would be protected by attorney-client privilege. At the same time, the speech reflects Hinman’s personal views and can not be used by Ripple to further its case on the fair notice defence and over whether XRP is a security.

Matthew Solomon, Ripple’s lead attorney, agreed with Judge Netburn’s view that the SEC has changed positions to suit their interests in the case.

As to the speech, Solomon recalled that the court has already determined it is not deliberative process and the speech itself even said it was not a full legal analysis.

So what was the purpose of the advice? “If the purpose of the advice was not to conduct agency business, then there is a break in the chain”, Judge Netburn commented, to which Ripple counsel Solomon replied that the communications appear to “scream” that it was policy related, not legal advice.

The SEC attorney reiterated that the speech was to give guidance to the market and “the predominant purpose of the legal advice shows it was purely legal advice”.

“And you don’t think that your statement that the speech was to provide guidance to the market is an inconsistent position from positions you’ve taken previously?”, Judge Netburn asked, reminding that, in August 2021, the SEC stated the speech “was not to provide guidance to the market”. The SEC attorney denied its position is inconsistent, without providing an argument.

Ripple counsel Solomon then said there is enough here to show that the SEC “just wants to have it both ways here” and that “individuals have been sued here, and their reputations are under threat”. The facts about the speech are clear, said Solomon: “They were his personal views. He said that under oath. They didn’t ‘end up’ being his personal views. They were.”

The SEC attorney said the opposite, that “it’s very clear that these are legal issues being analyzed and the advice being given is legal advice, not about policy or business or anything else.”

Judge Netburn ended the hearing at that point and promised to review all the documents and get to a ruling as soon as possible.