Ripple Battle Offers Defense Strategy Against SEC Privilege

25 July 2022 Law360 Publication
Author(s): James G. Lundy Margaret Gembala Nelson

This article originally appeared in Law360 on July 25, 2022, and is republished here with permission.

In U.S. Securities and Exchange Commission v. Ripple Labs Inc., a discovery battle over claims of privilege by the staff of the SEC’s Division of Enforcement in combination with a recent U.S. District Court for the Southern District of New York ruling, could make waves that will affect future litigation with the SEC.1

The parties have been clashing over various claims of privilege by the SEC, and the battle lines have been drawn over a June 14, 2018, speech by then-SEC Division of Corporation Finance Director William Hinman, titled “Digital Asset Transactions: When Howey Met Gary (Plastic).” 2 On July 12, the court issued another ruling in favor of the defendants.

The ripple effects from the court’s most recent ruling have the potential to affect strategies of defendants currently litigating against the SEC and into the future. As discussed below, the SEC sought to utilize multiple privilege claims and creative litigation tactics to prevent the production of internal communications related to the Hinman speech, which the defendants in this case may be able to utilize to assist with their defense against the SEC’s allegations.

In addition to criticizing the SEC’s tactics, the court’s ruling reins in the privilege claim at issue made by the SEC. Future defendants litigating against the SEC may be able to study the arguments made and summarized below and this court’s rulings to pursue through discovery certain internal communications among SEC staff across the various SEC divisions and offices to assist with their defense strategies.

Before addressing this speech and the discovery tactics of the parties, by way of background, on Dec. 22, 2020, the SEC filed a complaint against Ripple Labs and two of its senior executives alleging violations of the registration provisions of the Securities Act and alleging that they raised over $1.3 billion through an unregistered ongoing digital asset securities offering. These defendants have vigorously denied the allegations and actively pursued discovery against the SEC to support their defenses.

The Hinman speech came to the forefront of the parties’ discovery disputes starting with an opinion and order issued by U.S. Magistrate Judge Sarah Netburn on Jan. 13.3 Based on the defendants seeking an order to compel the SEC to produce certain documents that the SEC claimed to be protected by the deliberative process privilege, the court granted the motion in part and denied it in part.

As for the aspect of the ruling related to the Hinman speech, the court ruled that emails concerning this speech or draft versions of it are neither predecisional nor deliberative agency documents entitled to protection. The court provided several bases for this aspect of its ruling, but the primary basis appears to be that the speech expressed Hinman’s own personal views, as supported by this footnote in said speech:

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.4

After this ruling, the SEC moved for partial reconsideration or clarification of the court’s Jan. 13 order that focused on the aspect of the ruling that the deliberative process privilege did not shield emails and draft versions related to the Hinman speech.

On April 11, the court denied the reconsideration, but granted clarification.5 In denying reconsideration, the court stated that “[h]aving insisted that it reflected Hinman’s personal views, the SEC cannot now reject its own position.”6

Regarding the clarification ruling, the court provided that for communications between staff discussing the Hinman speech in the context of how it may implicate other, separate agency deliberations, but not deliberations about the content of the Hinman speech, the SEC may seek leave to redact those communications from the production.

In response to the April 11 order, the SEC did much more than abide by the clarification ruling in that order. On April 29, the SEC made a six-page, single-spaced submission respectfully asserting that the attorney-client privilege protects internal documents related to the Hinman speech.7

The SEC did address the clarification ruling in a five-line paragraph at the very end of the submission by seeking leave to redact two comments and offering to submit them for in camera review. The remainder of this submission addressed in detail arguments that the attorney-client privilege protects internal documents related to the Hinman speech.

Not surprisingly and perhaps rightfully so, the defendants attacked this latest submission by the SEC on May 3 in a request to file an additional brief.8 The defendants point out that this was the SEC’s sixth filing in opposition to defendants’ Aug. 10, 2021, motion to compel. The defendants further state that the court has twice overruled the SEC’s improper deliberative process privilege objections.

On May 13, the defendants submitted its response to the SEC’s April 29 letter submission and stated that after losing the deliberative process privilege claim to prevent production that “[n]ow, the SEC has doubled back to a theory [attorney-client privilege] it has not raised in several briefing rounds.”9

The defendants made the following arguments in support of the attorney-client privilege not applying: (1) Hinman delivered the speech in his personal capacity; (2) communications about the substance of his personal remarks are not within the scope of the attorney-client relationship; (3) the communications at issue involve no confidential information concerning the SEC as an agency to warrant protection by this privilege; and (4) the SEC lacks standing to assert this claim because the privilege belongs to Hinman.

On May 18, the SEC filed its reply in support of its April 29 submission. On June 7, the court held another hearing, and on July 12, issued its ruling, that included criticisms of the SEC’s tactics.10 In the holding, the court’s ruling came down to two issues: the attorney-client relationship and the predominant purpose of the documents.

Regarding whether an attorney-client relationship existed in relation to the Hinman speech, the court provided the following analysis:

This question is made unnecessarily complicated by the SEC’s litigation tactics. The SEC has distanced itself from the Speech to avoid discovery and sought to preclude Hinman’s deposition on the grounds that whatever he said in the Speech, it had nothing to do with the SEC’s position. The hypocrisy in 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. The Court, however, need not resolve whether Hinman was a “client” of the SEC lawyers because the evidence establishes that the predominant purpose of the communications was not to provide legal advice.11

The court went on to “find that the documents did not have the predominant purpose of soliciting or providing legal advice.”12 In reaching this conclusion, the court differentiated between advice on policy and legal advice with the following holding:

The law is settled that policy advice — like whether it is a good idea or a bad idea to make a particular public statement as a public figure — or communication 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.

Accordingly, the predominant purpose of the communications was not to provide legal advice to aid the SEC in conducting the public’s business. The documents must be produced.13

The SEC’s aggressive tactics in challenging the defendants’ motion to compel, while disappointing, is not surprising. The SEC’s internal processes are opaque, and the SEC has taken broad positions regarding privilege claims in past litigated matters to shield these processes and related communications from discovery.

Regarding the Hinman speech, the SEC lost not just once, but twice — and then lost again a third time with a renewed assertion of the attorney-client privilege.

Was it worth it for the SEC?

The court’s ruling relies on the predominant purpose of the communication involving policy, not legal advice. While the Division of Enforcement serves to enforce the federal securities laws, SEC internal and external communications also address policy as it relates to the securities industry.

One policy that we have seen developed and implemented in recent years is regulation by enforcement. This policy has been acknowledged in speeches. With this ruling as potential precedent, defendants litigating against the SEC may be able to pursue discovery for internal communications related to these speeches, other speeches, risk alerts, FAQs and other forms of SEC policy communications to assist with their defense strategies.


1 See

2 See

3 See SEC v. Ripple Labs, Inc. et al. , Case No. 20-CV-10832, ECF No. 413.

4 See, fn. 1.

5 See SEC v. Ripple Labs, Inc. et al., Case No. 20-CV-10832, ECF No. 465.

6 Id. at p. 9.

7 See SEC v. Ripple Labs, Inc. et al., Case No. 20-CV-10832, ECF No. 473.

8 See SEC v. Ripple Labs, Inc. et al., Case No. 20-CV-10832, ECF No. 477.

9 See SEC v. Ripple Labs, Inc. et al., Case No. 20-CV-10832, ECF No. 480.

10 See SEC v. Ripple Labs, Inc. et al., Case No. 20-CV-10832, ECF No. 531.

11 Id. at pp. 6-7.

12 Id. at p. 7.

13 Id. at p. 8.

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