The Securities and Exchange Commission (SEC) received a heavy blow as a result Judge Netburn’s denial of his request to access Ripple’s legal communications.
Ripple on a roll
Earlier this month, the US securities regulator filed a motion requesting access to “all communications constituting, transmitting or dealing with any legal advice Ripple has requested or received as to whether its offers and sales of XRP were or would be subject to federal securities laws . “
But Ripple’s legal team challenged that motion because communications solicited by the SEC are protected under attorney-client privilege, which they have not waived.
Judge Netburn agreed with this point, saying that solicitor-client privilege should be “strictly limited to the narrowest possible limits, in accordance with the logic of its principle”.
Accordingly, it denied the SEC’s petition.
Commenting on the decision, Lawyer Jeremy Hogan said Judge Netburn felt Ripple had acted in good faith. In this, they believed that they were operating according to the law. Therefore, communications from counsel for the company are not the issue to be considered.
Instead, in dismissing the SEC’s legal memorandum motion, Justice Netburn centered Ripple’s fair notice defense on the actions or inactions of the SEC and how a reasonable person would interpret things.
“The judge DENIES the SEC’s request to compel the production of the opinion letters from Ripple’s lawyers. Very important because the judge states that Ripple’s subjective beliefs regarding XRP are NOT relevant to the fair notification defense, blocking the route the SEC wanted to use to fight the defense.“
Fair Notice Defense
Ripple claims there was a lack of clarity and reasonable notice regarding their obligations under the law. They say the eight-year delay in pursuing legal proceedings, even listing XRP on more than 200 exchanges, of which the SEC was fully aware, was reason to assume that XRP was not a security.
As such, the fair notice defense argues that inaction on the part of the SEC has been interpreted as not a violation of securities law.
The SEC argues that there is case precedent indicating that a fair notice defense cannot be used in these exact circumstances. They cite the Kik Interactive case in which a federal court said the Kik’s Kin tokens violated securities law.
However, after reading the case, Lawyer Jeremy Hogan weighed in with his opinion, saying the two cases do not fall under exactly the same circumstances.
“Although the judge ultimately ruled against Kik, it was not ‘on pleadings’ but later in summary judgment. And this is where I also think the defense of Ripple’s Fair Notice will be decided.
Hogan also drew attention to Judge Hellerstein, who oversaw the Kik case, saying he was of “high age”, thus ignoring the intricacies of understanding technology.
He added that this was not the case with Justices Netburn and Torres, who oversaw the Ripple case, who showed great knowledge of the arguments.