Amping up the volume of an already bitter lawsuit over XRP, Ripple Labs is demanding nearly 30,000 responses to legal statements that cover more than 5,000 pages — and the U.S. Securities and Exchange Commission is crying foul.
In a letter this week to U.S. Magistrate Judge Sarah Netburn, SEC attorney Mark Sylvester called Ripple’s 29,947 “requests for admission” (RFAs) — a list of statements sent by one party in civil litigation to the opposing side that the opponent is asked to admit or deny — “unduly burdensome.”
“The fact that a case is complex, significant or well-publicized does not permit a party to burden its opponent with a crushing number of RFAs that is ‘abusive, unreasonable, and oppressive,’” Sylvester wrote. He added that many of the RFAs were “disputed, irrelevant or otherwise objectionable, and therefore are unlikely to result in useful admissions” as well as “cumulative and duplicative.”
According to the SEC, responding to just 776 RFAs in one set would require more than 300 hours of attorney time, responding to the 309 RFAs in another set would require more than 120 hours, and responding to even a fraction of the 28,862 RFAs in a third set would require “hundreds more hours of work.”
But Ripple has asserted all three sets of the RFAs contain relevant issues, the burden they impose is not unreasonable and by narrowing the issues for trial, could save significant trial time later on.
The SEC had in September first complained to the court that the requests — which relate to Ripple’s “fair notice” defense, the SEC’s burden under Morrison v. National Australia Bank Ltd to prove that the alleged XRP sales or offers occurred in the United States, and whether the XRP sales constituted “investment contracts” under the Howey test — would “impose a crushing burden” on the agency.
“Quantity of RFAs is proportional to the needs of the case”
The quantity of RFAs is proportional to the needs of the case,” wrote Ripple’s defense attorneys in an Oct. 7 letter to Netburn asking the judge to reject the SEC’s request to not have to respond to Ripple’s demands. “The largest set [of 28,862 RFAs] is based on the SEC’s ‘conten[tion] that every offer, sale and distribution of XRP’” by the defendants from 2013 through December 2020 — the period covered by the lawsuit — “was the offer, sale, or distribution of an investment contract,” Ripple’s defense attorneys wrote. “That contention puts centrally at issue the express terms of more than 1,700 separate contracts.”
Referring to the SEC complaint that the review of the contracts was unduly burdensome, Ripple’s attorney said: “This is a remarkable admission; apparently the SEC failed to review these contracts before alleging in its complaint that every single one of them was part of a course of unlawful conduct. Indeed, the SEC seeks disgorgement of ‘at least’ $1.38 billion in revenue generated by Ripple from those exact same contracts, yet says it can’t be bothered to actually read them.”
In December 2020, the SEC filed a lawsuit against Ripple alleging that the sale of its XRP token was an unregistered securities offering worth over US$1.38 billion. In the same lawsuit, 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. At the heart of the SEC’s lawsuit is whether transactions involving XRP constitute “investment contracts” and therefore securities subject to registration under Section 5 of the Securities Act of 1933.
“Despite multiple invitations to do so, the SEC has not yet identified a single contractual provision that supports its claim that these are “investment contracts” under the Howey test, yet it has reserved the right to rely on such contracts in support of its claims,” Ripple’s defense attorneys wrote.
SEC wants Ripple’s audio and video recordings of internal meetings
Separately, the SEC is asking the court to compel Ripple to produce relevant audio and video recordings of its internal employee meetings, including “all-hands” meetings, town hall meetings and fireside chats, which the agency contends “contain undisputedly relevant evidence.”
Ripple has called the SEC’s request “disproportionate” and maintained that it had conducted a comprehensive and reasonable search for recordings. But the SEC challenged Ripple’s search, saying it was lacking.
The SEC is also asking the court to deny Ripple’s request to seal transcripts of the company’s audio and video recordings of internal meetings that the agency had filed in support of its letter motion. “The documents have the tendency to influence the Court’s ruling on the discovery dispute before it, and no countervailing business or privacy interests outweigh their disclosure to the public,” wrote SEC attorney Pascale Guerrier in an Oct. 14 letter to the judge.
See related article: SEC wants to watch videos of Ripple’s company meetings
This is not the first time the SEC has complained about Ripple’s discovery efforts. In August, the SEC filed a motion to compel the production of relevant communications between Ripple employees on the messaging app Slack. Overruling Ripple’s objections over cost and complaints about the SEC’s “costly fishing expedition,” Netburn ruled to grant the SEC access to Ripple’s Slack messages.
“The Slack messages sought are relevant to the parties’ claims and defenses and proportional to the needs of the case,” Netburn wrote in her court order. “Any burden to Ripple is outweighed by its previous agreement to produce the relevant Slack messages, the relative resources of the parties, and the amount in controversy. Accordingly, Ripple is ordered to search and produce responsive documents from the Slack platform from the 22 custodians identified by the SEC.”
Amid the ongoing litigation, the price of XRP rose this week to US$1.22 — the highest since the beginning of September, according to CoinGecko data. “Last week, Ripple played some strong hands in its longstanding legal battle against the SEC,” said Lukas Enzersdorfer-Konrad, chief product officer at Bitpanda, in an email. “The rise was likely boosted by several strong moves made by Ripple in the tenth month of its courtroom battle against the SEC.”
See related article: SEC wins access to Ripple’s Slack message for XRP lawsuit