SEC v. Ripple: SEC’s answer under oath is a “This Is It” moment, legal experts

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The SEC has filed a letter in opposition to Ripple’s motion to compel the agency to provide clear answers to its interrogatories.

The plaintiff argued the defendants have waited until the end of fact discovery, more than seven weeks after receiving the SEC’s
first interrogatory responses, to inform the SEC they considered the responses deficient.

The SEC claims it has supplemented five of the responses at issue, met and conferred, and asked Defendants to identify what specific information they still required. “Defendants refused, and instead filed the Motion less than three hours before fact discovery closed.

The agency further added it has substantively answered the interrogatories at issue as required by the Federal Rules of Civil Procedure and the Court’s recent guidance that a party “need not catalog every fact or piece of evidence so long as it identifies representative samples and provides…meaningful disclosure.”

“Defendants’ argument here boils down to a complaint that they do not like the answers they received to the interrogatories at issue, in large part because the SEC’s and Defendants’ interpretation of the applicable law differs.”

“But the SEC is not required to answer the interrogatories in a way that adopts Defendants’ incorrect reading of the law. The parties’ dispute as to the correct application of the controlling legal standards should be resolved by Judge Torres at summary judgment, not on a motion to compel interrogatory responses”, the plaintiff wrote in the letter.

Ripple’s interrogatories are aimed at identifying the SEC’s theory of how the Howey Test applies to virtually all of Defendants’ transactions in XRP over the last 8 years.

The creator of the XRP ledger filed its motion to compel slightly after the extensively covered telephone conference which resulted in the Judge being unhappy with the SEC’s arguments and ordering an in-camera review of the documents of which the SEC claims privilege.

In the motion, Ripple stated evasive responses “must be treated as a failure to disclose, answer, or respond”, putting further pressure on the SEC which has been quite evasive in regard to its deliberative process. The motion also shows how the plaintiff has evaded Ripple’s inquiries.

Attorneys recommend SEC provide clear answers under oath for its own sake

Attorneys Jeremy and Thien-Vu Hogan have recently provided an analysis on this new topic: Ripple’s motion to compel answers to interrogatories.

The XRP-friendly stated how important is the pleading, arguing that the SEC will be writing under oath, which will have formal effect and cannot be dismissed as Hinman’s 2018 speech was.

“In other words, these answers can be introduced into evidence, quoted at trial, used during closing statement, etc. just like the SEC was on the stand with it’s right hand up in the air.”

“What we can see here in Ripple’s motion to compel answers or better answers to its Interrogatories is the SEC lawyers really struggle to lay out the entirety of its case with any specificity”, said Mr. Hogan in a video.

Part of the inquiry includes questions on how was Ripple’s sales of XRP sales of a security. According to the motion, the present answer from the SEC follows:

“These public statements included, but are not limited to: promises to and discussions of Ripple’s own incentives and plans to create an active and liquid trading market for XRP and to develop and foster “uses” for XRP; Ripple’s and its affiliates’, agents’, and executives’ incentives to build an ecosystem that utilized XRP and to be a good “steward” of XRP; Ripple’s significant holdings of XRP and its relationships to the company’s financial operations; Ripple’s and its affiliates’, agents’, and executives’ actual efforts to create demand for XRP; and statements touting the increase in price of XRP and its availability on digital asset trading platforms.

“These types of statements, and others of substantially similar sum and substance, were made, among other places, in YouTube videos, Tweets, and posts on digital asset discussion fora by Ripple personnel David Schwartz, Patrick Griffin, Arthur Britto, Breanne Madigan, Monica Long, Asheesh Birla, Miguel Vias, and Defendants Garlinghouse and Larsen (though many other Ripple employees made such public statements as well), from 2013 through 2020; public statements posted by Ripple on its website and on its Twitter or YouTube accounts including periodic updates and the quarterly “XRP Market Reports”; emails between Ripple personnel and members of the public discussing Ripple and/or XRP; and in-person conversations between Ripple personnel and members of the public discussing Ripple and/or XRP, such as at digital asset discussion symposia or fora. In addition, the economic reality of (1) Ripple’s holdings of XRP, Ripple’s incentives with respect to XRP, Ripple’s offers and sales of XRP (including, on occasion at a discount to market prices), the lack of uses for XRP, and Ripple’s Case 1:20-cv-10832-AT-SN Document 326-1 Filed 08/31/21 Page 11 of 31 11 promises to create uses for XRP; and of (2) XRP itself and its relationship to Ripple, all created in XRP purchasers a reasonable “expectation of profit” from their purchase of XRP.”

The SEC’s answer was under oath and can be used against them. “This is it! This is what the SEC is going to prove in Court and so let’s take a look at its answer under oath”, said Mr. Hogan.

The agency alleges Ripple was involved in creating a liquid market for XRP and promised to create “uses” for XRP. Secondly, Ripple allegedly attempted to manipulate the price of XRP, which did not have utility.

“So, putting aside whether the SEC has proven or can prove its case with these facts, the question for this motion becomes – is that a good enough answer?”, Mr. Hogan asked, leaving legal expert Thien-Vu Hogan to provide the answer.

“Not specific enough”, Ms. Hogan stated. “I mean, at one point in answering Interrogatory #8, the SEC provides a link to evidence and it’s just a link to Twitter in general. When I clicked on that piece of evidence, I saw a picture of my face – that’s some ugly evidence”.

“So for that reason alone, I would predict that Ripple’s motion to compel better answers to interrogatories will be granted in large part. But that being said, it’s probably in the SEC’s best interests to amend its answers because they aren’t very compelling to me and obviously not very specific and If I was representing the SEC I would want to amend these with an eye towards summary judgment and I think it will be allowed to do so because discovery has not been completed yet”.

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