SEC Must Surrender Hinman Email on Ether to Ripple, Judge Rules

A federal judge ruled an email containing a draft of the former SEC official’s speech is not protected by agency privilege.

AccessTimeIconJan 14, 2022 at 12:33 a.m. UTC
Updated May 11, 2023 at 3:48 p.m. UTC

The Securities and Exchange Commission (SEC) must surrender to Ripple an email with a draft of former director William Hinman’s speech on whether ether is a security as part of an ongoing lawsuit the regulatory agency filed against the crypto startup, a judge ruled Thursday.

The SEC sued Ripple and members of its leadership at the end of 2020 on charges the company sold and continues to sell the XRP cryptocurrency in violation of federal securities law. The agency and Ripple have been involved in a protracted back-and-forth over what sort of documents must be made available through the discovery process, with Ripple seeking a number of documents detailing internal SEC communications and policies.

SEC attorneys claim these documents contain staffer deliberations and are protected against discovery. Magistrate Judge Sarah Netburn of the Southern District of New York federal court, ruled some of these documents are protected but ordered the regulator to turn over others, including the email with Hinman’s speech and some notes from meetings between SEC staffers and third parties that are not Ripple.

“We’re pleased with the Court’s order, which grants Ripple access to important documents that the SEC was withholding. We will continue to aggressively defend this case – and we remain optimistic that resolution of this case will provide much needed clarity to the industry," Ripple General Counsel Stu Alderoty said.

The SEC did not respond to a CoinDesk request for comment.

An email of a draft of a 2018 speech by Hinman, former director of Corporation Finance, is included in the list of documents to be surrendered. Hinman gave the speech in June 2018, telling the audience at a conference that, in his view, ether was not a security.

The speech was seen as pivotal for the crypto industry, given the first 60 million ether (the native token of the Ethereum blockchain) was sold to raise funds for the Ethereum Foundation. Ether is now commonly seen as a commodity in the U.S., with the Commodity Futures Trading Commission overseeing derivatives products based on the cryptocurrency.

Hinman’s speech reflected his own views, he said at the time, a point the judge referenced on Thursday in her ruling.

“The personal views of agency employees are not protected by the privilege unless they bear on ‘the formulation or exercise of policy-oriented judgment,’” the judge said in a 23-page ruling. “Accordingly, emails concerning the speech or draft versions are neither pre-decisional nor deliberative agency documents entitled to protection.”

While the email with the draft speech must be turned over, a separate email sent by the Office of the Chief Counsel for Corporation Finance the day before his speech does not need to be turned over, the judge wrote.

“The documents related to SEC staff's legal analysis of XRP, contained the SEC's staff preliminary views during the Division of Enforcement's investigation into XRP and did not present a recommendation to the SEC,” she said.

These documents were prepared for the investigation into XRP, and therefore qualify as “the kind of pre-decisional and deliberative legal analysis the deliberative process privilege protects."

The SEC also does not have to turn over notes from meetings between SEC staffers and Ripple, as well as interagency discussions, the judge ruled.

Other privileged SEC documents include communications between SEC crypto czar Valerie Szczepanik and a U.S. Treasury Department office, as well as a presentation she made for former SEC Commissioner Michael Piwowar.

Overall, Ripple sought access to 14 entries and three additional documents.

“The SEC is further ordered to review its privilege log and produce, in full or in part, any documents previously withheld based on the privilege that would be inconsistent with this order,” Judge Netburn wrote.

UPDATE (Jan. 14, 05:35 UTC): Corrects that Sarah Netburn is a magistrate judge, not a district judge.

UPDATE (Jan. 14, 07:44 UTC): Adds comment from Ripple.


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Nikhilesh De

Nikhilesh De is CoinDesk's managing editor for global policy and regulation. He owns marginal amounts of bitcoin and ether.

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