Former SEC official warned Ripple that XRP could be deemed a security

Former head of the SEC’s corporate finance division SEC William Hinman stated that he warned Ripple about the risk that XRP could be deemed a security. The deposition transcript indicates this.

He recommended that the company stop selling the tokens to comply with the regulator’s requirements.

«Their [Ripple’s] interest was whether there was a way to restructure [the company’s operations] to bring it into compliance with securities laws. The first thing I told them: you continue offering XRP without any restrictions that apply to securities. If you want to bring your business into compliance with the law, you need to stop doing this, and they understood me», Hinman said.

Lawyer Jeremy Hogan noted that the published transcript of Hinman’s testimony contains excerpts selected by the SEC. Of 500 pages, only 90 became public, with parts of the witness’s statements redacted.

Hogan studied Hinman’s testimony and highlighted two key points. First, the witness discussed with Ripple representatives possible options for legal compliance in 2020.

Only after that did he notify the company’s leaders and lawyers that they were violating the law. By that time the SEC was already pursuing an investigation against the organization — a lawsuit against it was filed in December 2020 .

In Hogan’s view, this information plays to Ripple’s advantage, which contends that the regulator did not notify the company in a timely manner of a potential violation of the law. He stressed that the argument concerns only the period from January to December 2020.

Secondly, the lawyer saw a contradiction in the witness’s testimony when asked about the SEC’s policy on employees owning securities. The latter cannot buy assets related to regulator investigations. Moreover, any employee transaction in securities must be pre-approved.

A Ripple representative asked Hinman whether this rule extended to digital assets before 2018. The witness hesitated briefly and then answered, “no.”

«Until 2018, the SEC did not regard digital assets as securities with respect to the ethics of its employees. … And this is good for Ripple in terms of the strategy of fair notice defense during the period from 2013 to 2018,» Hogan concluded.

Hinman is a witness for the defendants. The SEC tried to appeal his subpoena in court, but this challenge was denied.

Earlier, the watchdog Empower Oversight identified a conflict of interest in the actions of the former regulator employee.

The legal fight between Ripple and the SEC continues to gain momentum. Last week the agency filed a motion seeking access to «terabytes» of Slack messages by the company’s employees.

On August 16, Ripple sought to challenge the regulator’s demand. In the motion, the company described the regulator’s request as “burdensome and highly disproportionate” to Judge Sara Netburn.

#XRPCommunity #SECGOV v. #Ripple #XRP Ripple has filed it’s Opposition to the SEC’s Motion to Compel Ripple to search for and produce relevant Slack communications.https://t.co/IPCQFMCKmW

— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) August 16, 2021

«Other courts that have considered similar requests to disclose Slack data have held that disclosure of such information is burdensome and costly. In cases where the requesting party has already received a substantial amount of data, they denied the corresponding requests», Ripple’s motion states.

In response, the SEC noted that as of July 30, 2021, Ripple had not attempted to challenge the request. Moreover, the company had previously admitted that some messages pertain to the case.

#XRPCommunity #SECGov v. #Ripple #XRP The SEC has filed a Letter opposing Ripple’s Motion to Seal. pic.twitter.com/FBugE3lS4g

— James K. Filan 🇺🇸🇮🇪 (@FilanLaw) August 19, 2021

In the SEC’s view, the complexity of the process of disclosing information should not present a problem in this case, since the Commission does not set strict timeframes for the respondents.

«Overall, there are no real prospects that the parties will fully settle this case within a few months», the agency concluded.

As a reminder, in the proceedings with the SEC, Brad Garlinghouse’s company also sought documents from the cryptocurrency exchange Binance.

Exhibit B to SEC Motion Redacted Version of Hinman Deposition 08172021 by ForkLog on Scribd

Read ForkLog’s Bitcoin news on our Telegram — cryptocurrency news, prices and analysis.