SEC need not produce all info requested by Ripple Labs, Court rules
The clash between the Securities and Exchange Commission (SEC) and Ripple Labs over access to documents has partially been resolved by the Court. On May 6, 2021, Magistrate Judge Sarah Netburn of the New York Southern District Court issued an order regarding discovery in the case launched by the SEC against Ripple and its executives.
Let’s recall that the SEC’s Complaint alleges that, in an unregistered offering of securities, Christian A. Larsen and Bradley Garlinghouse obtained at least $600 million of investor funds from selling a digital asset security called XRP, while orchestrating Ripple’s sales of another $1.4 billion of XRP.
The SEC asserts two claims against the individual defendants: violations of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, as to their unregistered offers and sales of XRP, and aiding and abetting Ripple’s violations, which requires proof of knowing or reckless conduct (scienter).
In April, the regulator filed a motion with the Court seeking to prevent the defendants from accessing certain information. The regulator requested an order that resolves pending discovery disputes and bars the defendants from seeking irrelevant, privileged SEC staff materials.
According to the SEC, the defendants are seeking to ignore the limitations of a Court’s Order and to mire the SEC in indefinite discovery disputes and, if successful, document review. The SEC sought to prohibit Defendants from: (1) obtaining internal SEC staff communications the Court already excluded from production, (2) searching SEC staff personal devices, and (3) adding custodians.
The order issued on May 6, 2021, partially sides with the SEC’s arguments. The Court made the following clarifications:
The SEC must produce communications with third-parties, including external agencies and market participants, subject to a privilege assertion.
The SEC need not produce informal intra-agency communications, such as emails, and such communications need not be searched or logged.
Intra-agency memoranda or formal position papers discussing Bitcoin, Ethereum, and XRP must be searched for and produced subject to a privilege assertion. Examples of such documents include Division reports, final reports of internal working groups, or formal position papers submitted to the Commissioners. Although such documents may ultimately be privileged, information that would be provided on a privilege log, such as dates and participants, may itself be relevant and is discoverable.
Any documents withheld on the basis of privilege must be identified on a privilege log.
The Court directs the parties to continue to meet-and-confer on the remaining issues presented in their letters.
The lawsuit continues at the New York Southern District Court.