Securities and Exchange Commission v. Ripple Labs Inc.

Background

The Securities and Exchange Commission brought the underlying action under Section 5 of the Securities Act of 1933, alleging that the defendants were unlawfully offering or selling securities and that Bradley Garlinghouse and Christian Larsen aided and abetted Ripple’s alleged violations. In this discovery dispute, the defendants sought documents they said could help challenge the SEC’s allegations that they were objectively reckless in believing XRP was not a security and that Ripple lacked “fair notice” that XRP was a security.

The SEC withheld documents under the deliberative process privilege, which generally protects government records showing preliminary discussions, recommendations, and analysis used to develop agency decisions or policies. The court conducted a private review of exemplar documents listed in Appendix A and three additional documents. The SEC had also asserted attorney-client and attorney-work-product privileges for some materials, although those assertions were not addressed for every document.

Rulings on the Documents

For Entry 1, the court divided 17 sets of notes into three groups. The SEC did not establish that 11 sets of notes from meetings with third parties—Parts A, C-F, H-K, N, and P—reflected the type of agency judgment or deliberation protected by the privilege. The court therefore ordered production of those notes, subject to the SEC seeking permission for limited redactions if discrete portions showed the note-takers’ own thinking or SEC staff deliberations. The court found that four sets of notes from meetings with other regulatory agencies—Parts B, G, and L-M—were protected because they reflected internal agency discussions. It also found that two sets of notes from meetings involving Ripple or its shareholder—Parts O and Q—were protected because disclosure could reveal the SEC’s internal thought processes.

The court held that Entry 2, consisting of a June 13, 2018 email and attached memorandum concerning SEC staff’s preliminary legal analysis of XRP, was protected. The materials were prepared to assist SEC Enforcement staff in deciding whether to charge Ripple with violating the securities laws. Entries 3, 4, and 5, which reflected discussions among the SEC, the Department of the Treasury, and the Commodity Futures Trading Commission about applying the regulatory framework to digital assets, were also protected. Entry 6, concerning recommendations and policy options about digital assets and initial coin offerings, was protected, and the court rejected the defendants’ claim that the SEC had waived the privilege. The court did not decide whether Entry 7 was privileged because the SEC had already produced it and had not submitted it for private review.

For Entry 8, the court did not find enough support for the SEC’s deliberative-process claim, but it held that the entire presentation was protected by the attorney-client privilege. The court held that Entry 9—emails and drafts concerning William Hinman’s June 14, 2018 speech—was not protected by the deliberative process privilege because the speech expressed Hinman’s personal views rather than the SEC’s policy or position. Entries 10 through 14 were protected because they reflected preliminary agency thinking, communications planning, or recommendations about communicating SEC policies. The court also found that the three additional documents were protected in whole or in their redacted portions because they contained advice, recommendations, or internal analysis about agency meetings and possible no-action relief.

Whether Privileged Documents Had to Be Produced

The court separately considered whether the qualified deliberative process privilege should yield to the defendants’ need for discovery. It found that the defendants’ relevance arguments favored disclosure to some extent, particularly because internal SEC discussions could potentially bear on whether XRP’s legal status was ambiguous or uncertain and therefore on the individual defendants’ alleged recklessness. The court found that other available discovery weighed against disclosure. The significance of the litigation and the SEC’s role as plaintiff weighed slightly toward disclosure, but the possibility that disclosure would discourage candid government discussions weighed strongly against it. On balance, the court held that privileged documents did not have to be produced where the privilege applied.

Disposition

Judge Sarah Netburn granted the defendants’ motion in part as to Parts A, C-F, H-K, N, and P of Entry 1 and granted it in full as to Entry 9. The motion was otherwise denied. The SEC was ordered to review its privilege log and produce, in full or in part, any documents previously withheld under the privilege that were inconsistent with the order. The clerk was directed to grant in part and deny in part the motions at ECF Nos. 289 and 290.