In a big win for Ripple Labs, the Securities and Exchange Commission (SEC) has been denied a motion to conceal former director William Hinman’s draft documents of a 2018 speech in which he infamously said Ethereum was not a security.
US Magistrate Judge Sarah Netburn didn’t pull punches in her official statement, published Tuesday. Effectively, she said the SEC was taking legally immoral efforts to keep the speech drafts out of the court’s hands to avoid losing the battle — and that despite the SEC’s best attempts, they must be produced.
The SEC has used two very different arguments to avoid coughing up Hinman’s speech drafts. First, that it’s not a reflection of the agency’s views or methodology for regulating crypto. Second, that Hinman sought and received the SEC’s advice in drafting the speech — seemingly used as a last-ditch attempt by lawyers to protect the draft on the grounds of attorney-client privilege.
Only, Judge Netburn saw right through these attempts. The judge accused the SEC of hypocrisy and serving its own interests at the expense of adhering to the law.
“The hypocrisy is arguing to the court, on the one hand, that the speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law,” her statement read (our emphasis).
For those not yet in the know, the SEC first took Ripple Labs to court back in 2020. It argued top execs Brad Garlinghouse and Christian Larsen knowingly sold unregistered securities through Ripple (XRP) tokens.
- Ripple countered, arguing Hinman’s speech lay the groundwork for assuming cryptocurrencies were not securities.
- The SEC has done everything it can to prevent the speech’s draft documents from being admissible in court.
- The legal battle has captured the attention of the entire crypto community — its future ruling may set a precedent.
Hinman speech could stay out of court still
The crux of the debate surrounding Hinman’s speech drafts under attorney-client privilege isn’t whether Hinman could be considered a ‘client’ of SEC lawyers — he can be, and both sides acknowledge it.
The sticking point, as Judge Netburn points out in her opinion letter, is “whether a government employee can be a client when the matter about which the employee seeks advice is not ultimately agency business.”
Ripple’s lawyers argued that Hinman’s speech doesn’t count as legal advice but an “outside activity.” The SEC’s lawyers responded by saying Hinman’s speech had to have been an “official duty” and therefore he was a client in this context — advice by staff wouldn’t have been available to Hinman unless he was an employee and instead a ‘private citizen.’
Ultimately, Judge Netburn found that Hinman’s speech drafts “did not have the predominant purpose of soliciting or providing legal advice,” but rather sought policy advice and recommendations. This distinction means that the SEC cannot claim attorney-client privilege to conceal the documents from court.
“Policy advice — like whether it is a good idea or a bad idea to make a particular public statement as a public figure — or comunnication advice — like whether a statement is on-message with the agency’s position — is not protected legal advice, even when it is offered by lawyers,” she wrote.
However, it appears the SEC could appeal Judge Netburn’s decision. Whether that would work out for the agency is unclear but as it stands, the SEC must produce all drafts of Hinman’s speech.
Protos will update this piece should the SEC decide to appeal. You can find our other coverage of the court case here.