Key Takeaways

• Dates for the continuation of the trial have been released
• September is a big month for the case
• Judge rules Ripple did not violate securities laws

Even though the SEC’s action against Ripple is still pending, Judge Analisa Torres has previously decided that XRP transacted on secondary markets (crypto exchanges) should not be regarded as a security.

The SEC’s legal battle against Ripple is still ongoing because the same judge found the business guilty of selling XRP on the primary market in violation of an implied investment contract.

The dates for the upcoming litigation have now been made public.

Two Key September Dates

The Securities and Exchange Commission (SEC) recently filed an interlocutory appeal in relation to the XRP ruling, which has added to the unfavorable attitude around the price of XRP.

As a result, Ripple must respond by September 1 and the SEC by September 8 in order to address any additional responses that Ripple may provide. This window of time is crucial because it determines how XRP will develop legally and how that will affect the performance of its market.

The SEC emphasized in its court brief that the key issue in the dispute wasn’t simply whether XRP is categorized as a security.

The SEC does not intend to pursue an appellate review of any decision questioning the nature of the underlying assets, which are effectively computer code devoid of inherent value, according to the document.

An Ongoing Trial

Judge Torres established the dates for the following due dates in the case in a document (Pretrial Scheduling Order ), which was filed on Wednesday, August 9, 2023.

The parties shall submit any blackout dates for the trial by August 23, and shall file any motions in limine by December 4, respectively. On the other hand, responses to motions in limine must be submitted by December 18.

The court will determine a final date for the pre-trial meeting once a trial date is fixed in stone, thus the parties must file all necessary preliminary documents by December 4th.

Judge Torres actually intends to conduct a full-fledged judicial trial replete with a jury in order to assess Ripple’s behavior.

There is no official start date for the courtroom trial, but it is rumored to begin between 1 April and 30 June 2024.

Therefore, it is quite improbable that this issue will be resolved this year. Furthermore, since the trial’s potential duration is unknown in advance, it is impossible to predict whether it would conclude in the second half of 2019 or even in 2025.

In other words, it is extremely unlikely that any Ripple conviction or acquittal will occur before to Bitcoin’s price halving.

Ripple Wins

After nearly two years of litigation, Ripple landed a significant win against the SEC. On Thursday, July 13, U.S. District Judge Analisa Torres declared that Ripple did not violate federal securities law by selling its XRP token on public exchanges.

The announcement  caused a domino effect of positive outcomes. The exchange’s native token saw a huge surge in price, another big exchange had its hope revitalized regarding its own SEC case, and the market may have just changed its perspective on altcoins.

Essentially, the judge ruled that Ripple did not violate the securities law by selling $1.3 billion worth of XRP. Judge Torres decided that Ripple’s XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because they do not offer any guarantees of profit. 

On top of that, Ripple sold XRP in “blind bid/ask transactions,” and therefore buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.”

But There’s A Caveat

Judge Torres also found that Ripple’s sale of $728.9 million worth of XRP to hedge funds and other sophisticated buyers counts as unregistered sales of securities. The decision lies on the fact that Ripple “was pitching a speculative value proposition for XRP”.

CEO Brad Garlinghouse and former CEO Chris Larsen are now at the mercy of a jury. Judge Torres is leaving it to the jury to decide whether the executives aided the company in violating securities laws. 

Also, Garlinghouse and Larsen may not argue that the allegations lack fair notice. 

“The law does not require the SEC to warn all potential violators on an individual or industry level.”

Huge Win For All Exchanges

Ripple was among the first cryptos to receive regulatory scrutiny from the SEC regarding the status of crypto tokens as securities back in 2021. Since then, the regulatory body has filed more than a hundred lawsuits against crypto companies, mostly ending in settlements. 

However, one key US-based exchange could not be happier about the outcome of Ripple vs the SEC. 

Coinbase, the biggest US-based crypto exchange, is currently at legal odds with the SEC. The SEC filed a lawsuit against the exchange in June for similar allegations of trading in unregistered securities. 

Garlinghouse: SEC Acted in Bad Faith

In response to the June 13 unsealing  of the Hinman Documents in the continuing legal dispute between Ripple and the SEC, Garlinghouse posted a video to Twitter where he discussed the timeline of the case and voiced his displeasure with the SEC.

According to Garlinghouse in the video from June 17, the Hinman documents imply that the SEC “knowingly created confusion about the rules, and they used that confusion through enforcement.”

Garlinghouse harshly slammed the SEC’s conduct in his remarks, calling them a blatant instance of “bad faith, plain and simple.”

He asserted that this mindset has existed since the lawsuit against Ripple’s initial filing in December 2020, calling it a “very Grinch-like touch” to bring the complaint “days before Christmas.”

This is the epitome of prioritizing politics over people, he said, and the pursuit of power over wise policy.

Without any attorneys present, Garlinghouse directly spoke with William Hinman and Jay Clayton (the SEC at the time who later brought the complaint against Ripple in 2020, the day before he retired).

The CEO of Ripple and other senior officials responded to all of the SEC representatives’ inquiries, and, in Garlinghouse’s words, neither Clayton nor Hinman ever suggested to him that XRP constituted a security. Later, according to Garlinghouse, they utilized the details he gave them in confidence against Ripple in court.

He contends that the Hinman speech is more about the SEC’s overall position against the crypto sector than “any one token or any one blockchain,” and that the SEC is “looking to kill” innovation and the cryptocurrency industry in the U.S.

Hinman Focusing his Speech on Ether

After a long wait, the Hinman documents were released to show how former director of the SEC William Hinman affirmed that digital assets can indeed be considered commodities should they achieve enough decentralization. However, messages accompanying the former SEC director show that he insisted on focusing his speech on Ether, against the recommendations of his office.

All Cryptocurrencies, Not Just Ether, can be Commodities 

Messages accompanied by Director Hinman’s speech with his editors show that he was advised against including a statement about Ether specifically, as it might introduce discrepancies in future crypto-related deliberations. One editor noted that “We still have reservations about including a statement directly about Ether in the speech. Even with the caveats in the sentence, it seems that it would be difficult for the agency to take a different position on Ether in the future.” Adding that “With the sentence, the reaction seems less likely to focus on the analysis, and more likely to focus on the potential fall out of making a direct statement about Ether’s status as a security.”

Ripple CEO Fires Back

Brad Garlinghouse, CEO of Ripple took to Twitter  to respond to the findings in the Hinman documents saying “It’s absolutely unconscionable that a regulator – when presented with so much pushback on what he was about to say / how he compiled this fake “test” in the first place – decided to move forward anyway and throw an entire industry into chaos.” when commenting on the former director’s blatant dismissal of recommendations by the SEC general council who had advised him to modify his speech to be more in-line with the Howey mandate, avoiding future confusion on the topic of whether crypto assets, including Ether, are considered securities.

Crypto legal expert and Cryptolaw founder John Deaton commented  on Garlinghouse’s response, saying “@Ripple’s CEO is showing great restraint here. After a 2 1/2 year investigation, he was personally sued – in a non-fraud case – where it was alleged that he was reckless in not knowing #XRP was a security in 2015 when SEC enforcement lawyers themselves couldn’t determine if #XRP was a security in 2018 when they wrote the #XRP memo, while also considering that those same enforcement lawyers were allowed to own/trade #XRP up until 2019. But he was reckless. And let’s not forget that despite the fact that he and @chrislarsensf provided the SEC with evidence documenting every single #XRP sale they’ve ever made, the SEC still attempted to bully and intimidate them by seeking every bank and credit/debit card transaction they’ve made for the last decade. Judge Netburn, of course, shut that gross overreach down. But I’m not sure I could be so politely stern.”

CryptoLaw Founder Tips Ripple for Outright Victory

Attorney and CryptoLaw founder John Deaton claims  that Ripple has a 25% chance of an outright win. He also mentions that the SEC has a 3% chance of an outright win. His assumption is based on the fact that the case is nearing its end, and on the ‘Hinman documents’. ‘Hinman documents’ are internal SEC messages that accompanied a 2018 speech given by former SEC Director William Hinman, stating that cryptocurrencies can transition from securities to commodities once they become decentralized enough.

“Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.” – said SEC Director Hinman in his speech.

The SEC, on several occasions, attempted to keep such documents sealed, claiming that they were unrelated to the case. However, on May 15th, 2023, United States District Judge Analisa Torres denied SEC’s motion to keep the documents sealed in a win for Ripple.

Ripple Vs. SEC—the History

In 2020, the SEC alleged that Ripple raised over $1 billion in 2013 through the sale of XRP in an unregistered security offering to investors. Ripple then responded XRP is not a security and that the SEC lacked fair notice.

The SEC then responded by requesting the judge for a hearing immediately, and in June 2021, the court extended the SEC’s deadline for disclosing its internal crypto trading policies.

Ripple Labs defended itself by saying, “XRP does not qualify as an investment contract,” as the company itself never entered any such contract with its investors in the first place. Furthermore, XRP remains outside the SEC’s range since it is a virtual asset.

In a recent interview, the president of Ripple Labs, Monica Long, commented , “Both the facts and the law” are on Ripple’s side.

Recent Developments: Can Denying Sealing Hinman Docs Help?

When talking about recent developments in the interview, Garlinghouse expressed his optimism based mostly on recent happenings regarding William Hinman, the SEC’s former Director of Corporate Finance, who said Ethereum (ETH) is not a security.

Garlinghouse said he expects a court decision to occur “in weeks rather than months”.

“The court just ruled last week that the notes in the emails associated with that are going to be made public, and should be public around June 13th. So I think that’s a huge win for transparency,” Garlinghouse said and added that the biggest problem is that there wasn’t “clarity, despite calls and demands from leaders across the crypto industry.”

However, it is important to realize that the court’s decision will be based on the case’s merits and legal interpretations and that the involvement of William Hinman’s speech does not directly decide on the outcome.

XRP price shoots up

On May 27, XRP continued its winning streak to three sessions, rising by 0.71% to end the day at $0.47211. At the time of writing, on Monday, the price stood at $0.4807 rising by over 4% outperforming Bitcoin and Ethereum in May 2023 so far.

The technical indicators are bullish, showing XRP might be getting back to $0.50.

Crypto analyst Ali Martinez tweeted that crypto whales keep accumulating XRP and added they already had gained more than 52 million XRP in the last three weeks, totaling around $22.9 million.

https://twitter.com/ali_charts/status/1662215112659456000 

SEC is Having a Major Impact on Crypto

For a while now, the SEC has been trying to regulate by enforcement, driving crypto investment offshore.

This kind of approach might just lead to SEC impacting the crypto space massively. However, things may fall toward other crypto companies embattled with the agency. By the same token, the Hinman documents could also boost Coinbase’s future law actions against the regulator.

Furthermore, Coinbase has an even stronger fair notice argument than XRP. That’s because the SEC previously allowed Coinbase’s IPO in 2021, being perfectly aware that the company’s business model was cryptocurrency listing–including XRP – all without a broker-dealer license to sell securities.

Gary Gensler, the SEC Chair, plays a significant role in this context as well, and his approach could be considered a fatal flaw in both cases. Recently, he claimed  that all digital assets except Bitcoin should be considered securities.

Conclusion

Hinman documents could reveal more evidence of internal communications than the SEC would want since it could disprove all the agency stands for regarding crypto regulation.

This could be a problem when it comes to the law itself but also when it comes to public opinion. On the other side, it could strengthen Ripple’s argument that the lack of regulatory clarity caused the company to lack fair notice of what was forbidden.

The confidence of the CEO, Brad Garlinghouse, shows that a potential climax could soon be happening. This represents the real worth of this legal battle in shaping the future landscape of cryptocurrencies and impacting the global decisions of entrepreneurs and investors.