A federal judge ordered that Ripple Labs Inc. can interview a former SEC employee about the agency’s policy decisions as the firm battles a lawsuit accusing it of deceiving investors about its XRP cryptocurrency.
Last year, the SEC filed a lawsuit in New York against Ripple, co-founder Christian Larsen, and CEO Bradley Garlinghouse, alleging that they created a “vacuum” that allowed them to sell XRP into a market with minimal information they decided to reveal.
The agency claims that the two men made a $600 million profit and disregarded legal advice that the coin may be classified as an investment contract and hence a security. They were accused of selling virtual tokens without registering them as such, according to the report.
The SEC can’t control XRP, according to Ripple, because it’s a means of exchange, not a security, and it’s utilised in foreign and domestic transactions.
Ripple has sought a federal magistrate judge to allow it to question William H. Hinman, the former director of the SEC’s Division of Corporation Finance, about the agency’s policymaking process. The goal was to see if a speech Hinman gave in June 2018 indicating that Bitcoin and Ether aren’t securities can be used to indicate the commission’s official position, as well as to gather evidence on whether market participants perceived XRP as a security.
Warning from the Securities and Exchange Commission
The Securities and Exchange Commission contested the subpoena, claiming that questioning would “subject high-level government officials to depositions regarding any rule, regulation, or policy they counselled on or spoke about and that eventually underlay an enforcement action.” It cautioned that this would “disrupt the functioning of government agencies by preventing capable people from serving in government because their tenures are almost guaranteed to land them in legal trouble.”
After a hearing on Thursday, U.S. Magistrate Judge Sarah Netburn ordered Hinman to take a deposition, stating that as a “high-ranking employee” who commanded one of the SEC’s six divisions, he had “considerable authority in a very significant federal agency.”
“This is not a typical SEC enforcement case,” Netburn explained, adding that Hinman’s deposition would not “open the floodgates.”
She stated that the issue “involves key policy decisions in our markets, the amount in dispute is big, and the public’s interest in this matter is significant.”
From 2017 until 2020, Hinman served as director of the SEC’s Division of Corporation Finance, where he oversaw the emergence of blank-check firms, confidential filings, and other alternatives to traditional IPOs and direct listings. In January, he rejoined Simpson Thacher & Bartlett LLP as a senior adviser, and in May, he became a partner and senior policy adviser at investing platform &vest.