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Ripple have reason to celebrate after it made a significant procedural victory in its fight with the Securities and Exchange Commission (SEC) on Thursday. The SEC has accused the crypto payment firm and two of its top executives of violating securities laws by selling $1.3 billion worth of XRP to the general public and other investors. Ripple was officially sued in December 2020 and the case has been going on since.
U.S. District Court Judge Sarah Netburn, who is assigned to the case, had denied the SEC’s motion to keep out the deposition of a former SEC official, William Hinman. The SEC had argued that Ripple’s request to depose was unreasonable and unrelated to the case. This means that Ripple can now ask Hinman to testify in court. Hinman had said in 2018 that Ethereum is not a security and since XRP hold resemblance to Ethereum this makes a hearing on his decision-making of the time very relevant to Ripple’s defense.
The SEC’s ruling on Ethereum ruling in a 2018 speech by Hinman, has proved controversial over time. Although it was celebrated in crypto world because it lifted a legal cloud over Ethereum, the speech raised eyebrows in the legal world after Hinman invoked a new doctrine that held a blockchain token was not a security once it became “sufficiently decentralized.” Until the speech, such a doctrine was unknown in securities law, where the “Howey Test”—a set of criteria set out in a 1946 Supreme Court ruling—remains the measure for determining what is a security.
Ripple’s next move will now be to persuade the court that XRP should be treated similar to Bitcoin and Ethereum and be exempt from SEC registration. It will likely demand the release of SEC’s internally discussed criteria and notes to strengthen their claims. The SEC however, is playing hard to get with regards to the memos, citing privilege.
Nonetheless, Judge Netburn ordered Hinman to sit in for deposition once Ripple and the SEC agree on the scope.
To be continued…