The U.S. Securities and Exchange Commission (SEC) has been denied access to Ripple’s internal legal advice. A New York judge ruled against the regulator’s motion to access the firm’s memos through which it sought to prove that the payments company knew XRP was a security.
Ever since for SEC chair Jay Clayton brought charges against Ripple over securities violation in December, the two have been battling it out at the Southern District of New York. The latest battle has been on whether Ripple was aware that XRP might be a security even as it continued to sell the tokens to the public. To prove that it did, the SEC needed access to communication between Ripple and its lawyers.
However, Judge Sarah Netburn has denied the watchdog’s motion. According to the judge, the current standoff isn’t about whether Ripple committed securities violations knowingly. Rather, it’s about fair notice, with Ripple claiming that the SEC had failed to notify the company, and the blockchain industry at large, about what digital currencies are securities. For this, the internal memos are not relevant to the SEC.
In the past few months, Ripple has clung on to the defense that the SEC has failed in its duty as the market regulator. The firm points to a number of factors in its accusation, one of which is the fact that the SEC took eight years before pursuing the company. In that time, it issued no direct warning at all that XRP might be a security.
Ripple also cited William Hinman, a former top ranking official at the SEC who once clarified that Ether and BTC are not securities. The company cited this as yet another direction from the SEC that “further confused the market.”
Judge Netburn stated in her ruling, “The Court takes no position about whether Ripple’s pleaded defense is cognizable or if it will prove meritorious. I reach only the limited question of whether Ripple put its subjective state of mind or advice of counsel at issue merely by raising the defense, thus waiving its privilege. I conclude it did not.”
The SEC can refile the motion seeking access to the internal memos at a later date, but only if Ripple rests its defense on privileged communications it had with its lawyers. In addition, the motion can be reopened if Ripple pleads good faith – claiming that it acted in the firm belief that XRP wasn’t a security.
This is the second time the SEC has lost in a pretrial ruling in its quest to access internal documents to prove its case. Just over a month ago, Judge Netburn ruled against the regulator as it sought access to the financial records of Ripple’s two top-most ranking executives.