Big Development in the Ripple (XRP) Case
Takeaways~
- Ripple denied access to SEC employees financial records
- Setback for Ripple as it would’ve exposed whether SEC employees were trading XRP
- Ripple has accused SEC of abusing government privilege to hide disclosure
- Lawsuit moves to next stage as ‘discovery’ concludes
According to reporting, a New York federal magistrate judge declined to force the SEC to turn over records related to its own employees’ crypto transactions. This was something the legal defense of Ripple labs was vying for and hopeful to obtain as part of the discovery process. The point of Ripple seeking to obtain this information was to expose the SEC’s own employees for actually holding and trading Bitcoin, Eth, and XRP. This would’ve put the SEC in a tough spot to explain the hypocrisy. Clearly, Ripple and their lawyers believe that SEC employees were in fact trading crypto and have been, but this will not come to light according to the judge’s ruling.
Per the suit, “Ripple had argued that the individual preclearance decisions made by the SEC’s ethics counsel would expose the lack of clarity around whether XRP, Ripple’s signature digital asset, fit the bill of a “security”.” Basically, if the SEC was ‘clearing’ their own employees to trade XRP, then this would display that the rules around what XRP ‘is and isn’t’ were not and are not clear–especially because the SEC ruled that Bitcoin and Ether did not fit the ‘security’ definition. However, the judge ruled that this information doesn’t have any bearing “on the issues in the case”.
The judge apparently made the case that the clearance given by the SEC for their employees to trade XRP didn’t take into account “whether an asset like XRP was a security, or if trading in it complied with securities law”. This seems to be a very convenient rebuttal. This ruling was seen as a major win for the SEC, as Ripple has actually made a lot of headway in terms of uncovering facts in the discovery process. This is of course part of the landmark lawsuit against Ripple Labs for the sale of $1.4 billion worth of XRP since 2013, which “constituted an unregistered securities offering”.
This has been a drawn-out lawsuit that the SEC hopes will help buttress their view that most crypto assets are actually securities. The outcome of this lawsuit will set a major precedent going forward and will certainly have, say, a ‘ripple’ effect. The order issued on Tuesday revealed that the SEC gave “ethics guidance” on XRP to their employees in 2018, perhaps surrounding their own potential holdings of the coin. Ripple argues that the SEC only banned their employees trading XRP after the investigation into Ripple began, in 2019.
Suggested Read: WHAT IS RIPPLE?
The judge argued that revealing the financial information of SEC employees regarding the trading of XRP “is more likely to cause confusion or create collateral litigation disputes.” The judge cited “federal privacy statutes and regulations” as to why Ripple is not entitled to the financial information. The judge did however ask the SEC to provide Ripple with documents related to “when SEC employees were barred from trading XRP”. Ripple has argued that the SEC has abused their government privilege to hide disclosures.
The fact-gathering (discovery) portion of the lawsuit has concluded, which means we are getting close to a resolution. Ripple has done well in the lawsuit according to experts, especially when they showed an SEC official in 2018 stating that “sales of mainstream cryptocurrencies bitcoin and ether were not subject to securities laws”. Ripple has stated they do not “intend to settle” with the SEC, however, so this may get drawn out for longer than expected.
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