SEC v. Will Ripple restrict the federal agency franchise?

In the Southern District of New York, the Securities and Exchange Commission is trying to mitigate the effects of an order requiring it to produce internal documents relating to a 2018 speech on digital assets. As the judge considers dueling summary judgment motions in the case against Ripple Labs and its founders, it is worth considering what role the court’s decision to release a draft speech by an SEC executive will play.

In asking the court to decide the case without going to trial, the SEC recalled the January court’s decision to release a draft speech by William Hinman, then director of the SEC’s Corporate Finance Division. The agency claimed that this document does not help Ripple.

The final version of Hinman’s speech discussed a concept that is central to Ripple’s founders’ defense theory – if assets that function solely as a medium of exchange in a decentralized network are not a security, even though they might be packaged and sold as a security.

Regardless of the eventual outcome of the case, the decision to require the production of SEC documents advises changes in agency practice going forward.

SEC on offense

In its January ruling, the court partially granted Ripple’s motion to compel the SEC to turn over certain documents, including an email attaching a draft of Hinman’s June 14, 2018 speech.

The SEC argued that the draft was pre-sentence and deliberative because Hinman sought input from other SEC employees on the content of the speech before giving it. The court considered the draft to be a personal statement by Hinman and not an agency document and demanded that the SEC disclose it.

Ripple later argued that its founders took those words to mean that their token, XRP, was not itself an investment contract or a security in the eyes of the SEC, resurrecting the importance of Ripple’s proposed speech. 2018 for Summary Judgment Briefings.

The SEC petition points out that relying on this particular statement did not work for a former SEC defendant, Kik Interactive, and predicts that it will not help Ripple either. It remains to be seen whether the court can credit the Ripple founders’ arguments that their earlier understanding was reasonable.

Other protected documents

Ripple’s decision to ask the judge to conduct a private review of internal SEC documents was a rare challenge to principles of deliberative process and privilege. While the draft speech was delivered to Ripple, many other requested documents were not.

Generally, documents reflecting an agency’s internal deliberative process leading to a decision, whether prepared by an attorney or not, are protected from disclosure both in litigation and in response to Freedom requests. of Information Act. The purpose of this protection is to secure internal agency concessions and preserve the ability of agency personnel to communicate candidly about agency legal and policy decisions.

The SEC documents that the court ultimately protected from disclosure to Ripple included meeting notes reflecting “organized reports and judgments” and internal recommendations on policy options and attorney-client communications.

The SEC executive’s draft, on the other hand, was his personal notes in preparation for a speech that would express personal opinions on deals and sales of a digital asset. He only made the remarks after the standard disclaimer that the speech expressed only his views and not necessarily those of the SEC.

Impact on the agency’s franchise

Although federal litigants are well aware that their investigative brief will be turned over to the defendant, it was shocking enough for those of us who were litigating on behalf of the federal government at the time to imagine that presumably privileged information could be leaked. and potentially harm our agency’s positions. .

But Ripple’s court ruling has created safeguards that at least allay fears of a long-term chill in the agency’s outspoken communications. By continuing to protect many documents requested by Ripple from disclosure, Ripple’s court drew a line between those documents “created by the agency on behalf of the agency” and those that reflected the thoughts or opinions of a sole employee or executive, regardless of their role within the agency.

The court also left wiggle room for an individual employee’s opinions to be protected if they relate to the formulation or exercise of policy-based judgment. Essentially, if the employee’s allegedly deliberative document clearly relates to the consultation process, reflects agency policy, and, if released, would misrepresent or prematurely disclose agency views, it may then be considered a privilege of the deliberative process.

Finally, the court assessed whether the circumstances of Ripple caes merit overcoming qualified privilege in order to yield to more important considerations, including a possible chilling effect on government employees and their work. However, despite the consideration of this possibility, some of the documents did not merit protection.

Overall, Ripple’s court ruling certainly advises changes in the agency’s investigative and litigation practice. Notes taken at meetings, especially those with third parties, should be a critical distillation of the facts, including personal observations and comments, as opposed to near-transcription.

Drafts reflecting the opinions and comments of individual employees should be carefully drafted and discarded to ensure they do not negatively affect the position of the agency. In addition, defendants are likely to be more aggressive in their efforts to obtain disclosure of documents that may not qualify for deliberative process privilege.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Liz Boison is a partner in the Washington, DC office of Hogan Lovells and a former federal cryptocurrency attorney who focuses on financial regulatory advice, investigations, and litigation.


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