Ripple execs seek info to defend XRP trades from 16 foreign crypto exchanges

Michelle Lim

3 years ago

With the deadline for discovery drawing closer, the U.S. Securities and Exchange Commission (SEC) v. Ripple Labs lawsuit intensified this week with a series of filings on June 2 from both sides regarding discovery and deadline extensions.

Ripple’s executives seeking discovery from 16 foreign exchanges

Ripple’s CEO Brad Garlinghouse and executive chairman Chris Larsen are asking a court to issue letters of request for international assistance in accordance with the Hague Convention to authorities in the Cayman Islands, Hong Kong, South Korea, the U.K., Singapore, Seychelles and Malta to obtain documents related to their accounts and XRP transactions on 16 foreign cryptocurrency exchanges, to rebut the SEC’s charges that their personal sales of XRP constituted unlawful “investment contracts” and they had aided and abetted Ripple’s alleged securities law violations.

The foreign cryptocurrency exchanges are BitMart in the Cayman Islands; Bitfinex, Bitforex and Huobi in Hong Kong; Bithumb, Coinone and Korbit in South Korea; Bitlish and Bitstamp in the U.K.; BMXDM (formerly Bitmax), Bitrue, Coinbene, Upbit and ZB Network Technology in Singapore; HitBTC in the Seychelles, and OKEx in Malta, according to the court filing.

The list of nine document requests includes the platforms’ functionalities and the IP addresses of any wallets used for XRP trading and hot and cold storage. The foreign exchanges have been asked to respond by July 2.

The attorneys representing Garlinghouse and Larsen are arguing that “the SEC’s failure to allege domestic offers and sales should be fatal to its claims for the reasons set out in the Individual Defendants’ respective Motions to Dismiss.” In April, the two Ripple executives submitted motions to have the SEC’s lawsuit against them dismissed permanently.

“The discovery that the Individual Defendants seek will be relevant to demonstrating that the offers and sales that the SEC challenges did not occur in this country and are not subject to the law that the SEC has invoked in this case,” wrote the defense attorneys, adding that the information sought was to “assist defendants in rebutting the SEC’s claims against them.”

Last December, the SEC filed a lawsuit against Ripple alleging that its sale of XRP was an unregistered securities offering worth over US$1.38 billion. The SEC also named Garlinghouse and Larsen as co-defendants for allegedly aiding and abetting Ripple’s violations. The litigation is in its discovery phase with the SEC and the defendants seeking to bolster their case while battling over the information to be shared with the other side.

Ripple hits back at SEC’s request for additional discovery

In a separate letter filed on June 2, Ripple hit back at the SEC for seeking additional information including six depositions and records from five custodians as well as documents on its XRP transactions post-dating the lawsuit and lobbying efforts.

“Although presented as a simple discovery dispute, the true import of the SEC’s motion is revealed in the first footnote: to lay the foundation for an ‘extension of the current July 2 close of fact discovery deadline,’” wrote Ripple’s defense attorneys in a letter to U.S. Magistrate Judge Sarah Netburn. “The Court permitted the parties ten depositions each. At the time, the SEC agreed that it was important to resolve this case expeditiously. Now, just weeks away from the close of discovery, the SEC has changed its tune.”

“The SEC’s latest requests for 1 additional discovery are unjustified and should not be used as a basis to extend discovery,” asserted Ripple’s defense attorneys, noting that the SEC had received 67,000 documents from Ripple, subpoenaed 47 third parties and had 10 depositions on top of its 2½-year investigation where it received 50,000 documents from Ripple and subpoenaed five Ripple witnesses.

SEC and Ripple seeking extensions to deadlines

As anticipated by Ripple, the SEC is now asking a court to extend the deadlines for discovery by 60 days, with fact and expert discovery to end on Aug. 31 and Oct. 15 respectively, according to a separate legal filing. Requests for deadline extensions are common in discovery.

In a June 2 letter to U.S. district judge Analisa Torres of the Southern District of New York, the SEC’s senior trial counsel Robert Moye explained that apart from the disputes over discovery, there were still pending documents from Ripple and the agency needed more time to complete depositions as well as review and produce documents to Ripple.

In another letter to U.S. Magistrate Judge Sarah Netburn filed on the same day, Ripple’s lawyers are also asking, with the support of the SEC, for extensions of two deadlines related to the sealing and redactions of documents in a hope to “avoid burdening the Court with unnecessary disputes.”

Other issues in discovery

At the heart of the lawsuit is whether transactions involving XRP constitute “investment contracts” and therefore securities subject to registration under Section 5 of the Securities Act of 1933. The outcome of the SEC’s lawsuit against Ripple and determination of XRP’s status is being closely watched for its potentially far-reaching implications for the cryptocurrency industry.

Last week, Judge Netburn ruled to deny the SEC access to Ripple’s confidential material and privileged legal advice. In her ruling, Netburn concluded that Ripple had not “put its subjective state of mind or advice of counsel at issue” and did not waive its attorney-client privilege by asserting that the SEC had failed to provide fair notice to the market as to whether XRP was considered a security. Ripple’s fair notice defense is a key pillar of its defense.

Netburn earlier had granted Ripple access to the SEC’s internal communications regarding Bitcoin, Ether and XRP. “The discovery related to Bitcoin and Ether is relevant,” said Netburn at an April 6 hearing. “It is relevant to the Court’s eventual analysis with respect to the Howey factors, but I also think it is relevant as to the objective review of defendants’ understanding in thinking about the aiding and abetting charge or aiding and abetting count. I also think it is relevant to the fair notice defense that Ripple is raising.”

The judge has also ruled to allow the SEC to use formal requests to foreign regulators for information on Ripple and XRP and rejected the SEC’s demand for up to eight years Garlinghouse and Larsen’s personal financial information.