Decrying what it calls a “fishing expedition,” Ripple Labs is asking a court to deny the U.S. Securities and Exchange Commission’s demand for 1 million employee Slack messages that related to the XRP, according to a new legal filing.
“The SEC’s extraordinary demand calls for an extensive and costly fishing expedition that would likely take months to complete and come at very significant cost,” wrote Ripple’s defense attorneys in an Aug. 16 letter. “The SEC’s disproportionate request is also unreasonably duplicative of Ripple’s extensive production of over one million pages of discovery — including emails, documents, text messages, and responsive Slack messages for 33 custodians.” By custodians, the SEC means people it has identified as relevant to the case.
Last December, the SEC filed a lawsuit against Ripple alleging that the company’s sale of XRP was an unregistered securities offering worth over US$1.38 billion. The SEC also named Ripple’s CEO Brad Garlinghouse and executive chairman Chris Larsen as co-defendants for allegedly aiding and abetting Ripple’s violations. The lawsuit is being closely watched by crypto investors and companies around the world as the outcome could reshape the industry in one of the world’s biggest and most influential crypto markets.
The SEC last week asked the court to force Ripple to search and share with the SEC its employee communications on Slack, a business messaging platform. In a letter to U.S. Magistrate Judge Sarah Netburn, the SEC complained that a “massive quantity” of data had not been collected or searched due to a data error by Ripple’s vendor and that Ripple’s refusal to produce the missing documents was highly prejudicial to the agency. The SEC has refused Ripple’s offer of a compromise for the company to produce additional Slack messages from a limited set of nine custodians that had high Slack use.
“The relatively few Slack documents Ripple has produced so far demonstrate that the Missing Documents are necessary for the SEC to build a complete and accurate record for summary judgment and trial,” wrote SEC attorney Jorge Tenreiro. “The messages produced show Ripple employees (including custodians whose Slack messages Ripple refuses to search) discussing issues directly relevant to disputes at the heart of this case.”
“Ripple should not be permitted to reap a reward from its discovery mistakes and refuse, at the last minute, to search for the documents it long ago agreed to search,” Tenreiro wrote.
See related article: SEC seeks 1 million Slack messages from Ripple for XRP litigation
In their letter, Ripple’s attorneys rebutted the SEC’s assertion that Ripple’s internal Slack data that the SEC has not yet seen contained critical or unique evidence, saying there was “little merit to the SEC’s claim that Slack messages helped refresh the recollection of witnesses during their depositions” and “the litany of instances where Ripple’s employees allegedly ‘were not able to remember a number of important issues’ is vastly overstated.”
Despite collecting more than 115,000 documents from the Slack private channels for all 33 custodians, only 1,468 Slack documents — or less than 2% of the Slack documents collected and reviewed by Ripple — were deemed relevant and produced by Ripple to the SEC, according to the letter. “This low responsiveness rate belies the SEC’s contention that Slack data is a rich repository of uniquely relevant data,” Ripple’s attorneys wrote.
Ripple had taken steps to collect the missing direct messages and multi-party instant messages after it became aware that its vendor had inadvertently failed to collect those messages, wrote Ripple’s attorneys, adding that the low responsiveness rate of the additional data collected was consistent with that of the data produced earlier, “further undermining the SEC’s contention that Slack data is a repository of uniquely relevant communications.”
Unlike email, Slack data collection is not a straightforward undertaking. Slack exports, which are produced in the JSON data format, require a separate conversation step to process the data for human review. “The conversion process can be very time intensive due to the volumes and complexities of the Slack exports and will add to the overall cost burden to the client in terms of time and money,” said Canaan Himmelbaum, director of global business development at Consilio, Ripple’s data vendor, in an accompanying declaration.
According to Ripple, the Slack messages sought by the SEC could cost nearly US$1 million just to collect and process — more than Ripple has spent to date on other e-discovery costs in this litigation. The additional discovery sought was also unlikely to resolve disputes at the heart of this case and would require significant revision to the litigation’s schedule, given that it would likely take 12 to 15 weeks for Ripple’s vendor to collect and process the additional data the SEC wants, the attorneys wrote.
This dispute is the latest battle between the SEC and Ripple in the shadows of a looming deadline to wrap up discovery. Fact discovery and expert discovery are due to be completed by Aug. 31 and Oct. 15 respectively.
“The SEC has already reaped extensive discovery from its voluminous, wide-ranging requests for documents, information, and testimony, having issued no less than 126 RFPs to Ripple and 56 third-party subpoenas, on the heels of a two-and-a-half year investigation during which Ripple and numerous third parties produced thousands of documents,” Ripple’s defense attorneys wrote. “In responding to the SEC’s blizzard of discovery, Ripple collected over 11 million documents, representing nearly 10 terabytes of data, reviewed over 300,000 documents for responsiveness, and produced over 165,000 documents.”
“The SEC has also obtained over 240,000 documents from third parties, Ripple’s defense attorneys added. “The SEC’s demand is all the more unreasonable when considered against this backdrop.”
XRP was trading at US$1.20 as of publishing time, up almost 50% in the last seven days but down close to 5% over the past 24 hours alongside the slight crypto market correction today, according to CoinGecko data.