Judge Sarah Netburn has directed Ripple to provide missing messages to the United States Securities and Exchange Commission (SEC).
The order came despite Ripple opposing it on the basis that it would cost $1,000,000. According to Netburn, the over one million Slack messages are key to the SEC’s quest to unearth that the crypto-based company was dealing with securities.
In December last year, the SEC took Ripple Labs and top Ripple officials, Brad Garlinghouse and Christian Larsen, to court over selling XRP. According to the SEC, XRP is a security and was sold without following the securities laws.
The SEC reasoned that the messages from Ripple employees were “proportional to the needs of the case.” Apart from employees’ communications on Slack, the securities regulator also wants to get hold of email communications.
In August, the securities watchdog told the judge that messages earlier produced by Ripple seemed to be incomplete.
At the time, Ripple first said that it had provided everything but later admitted it could not provide all the messages due to a processing hitch. Interestingly, the glitch left out over one million messages.
Did Ripple Have Prior Knowledge on XRP’s Regulatory Status
The judge said Ripple’s conduct of withholding the communications was extensively “prejudicial” since the previously released messages indicated that the missing communications were critically important.
Notably, the communications left out covered Ripple’s intention to drive “speculative trading in XRP” and how announcements from the multi-billion company would affect XRP’s price. Also, the SEC believes the messages cover XRP’s regulatory status.
To protest providing the messages, Ripple argued that the process would cost be costly. Unfortunately, Judge Netburn reasoned that their importance outweighed the cost.
The judge added that “any burden to Ripple is outweighed by [...] the relative resources of the parties.”
The order compelling Ripple to produce more messages comes on the heels of a motion by Ripple seeking to know if the SEC’s employees hold any virtual currencies and its policies around cryptocurrency trading.
The SEC Reveals its Internal Trading Policies, Ripple Says It Needs More
In its motion, Ripple claims that the securities watchdog has failed to disclose a subset of information crucial to understanding how the SEC treats virtual currency trading.
The San Francisco-based virtual currency-focused company wants the securities regulator to tell whether its employees own XRP. Notably, this is not the first time Ripple is seeking to get the regulator’s internal trading policies.
Two months ago in June, Judge Netburn ruled in favor of Ripple and ordered the SEC to furnish Ripple with the guidelines. However, while the regulator produced them, Ripple observed that it needed more.
The regulator revealed its guiding rules governing its employees’ interaction with crypto trading. The information revealed that the SEC hadn’t prohibited its employees from investing in virtual assets up until the start of 2018.
Ripple extrapolated the guidance to mean that the SEC is yet to consider virtual assets “as securities.”
As such, Ripple noted, between 2013 and January 2018, the SEC allowed its employees “to buy, sell and hold XRP without any restriction by the SEC. [...] the SEC itself had not concluded that sales and offers of XRP were transactions in securities.”
SEC Made It Hard to Establish Whether It’s a Security or Not, Ripple
The timeframe also indicated that the SEC didn’t give XRP fair notice before labelling XRP a security. According to Ripple, the information provided regarding SEC’s internal trading policies indicated that after 2018, the regulator left a lot to interpretation, and it was hard to know which was or wasn’t a security.
Ripple also noted that the SEC’s decision on whether a digital asset was a security or not was based on a preclearance assessment based on a case-by-case analysis.
The San Francisco-based company argued that this made it difficult to know “whether the SEC actually prohibited or allowed transactions in XRP.” Ripple continued to observe that the regulator “has refused to provide [...] the preclearance documents.”
Recently, Ripple won against the SEC on other fronts. In a recent teleconference, Judge Netburn sided with Ripple noting that Brad Garlinghouse didn’t know XRP is a security until the SEC took it to court in 2020.
Ripple’s attorney also noted that the SEC is excessively relying on the deliberative process procedures to block scrutiny of its internal documents. After a heated exchange, Judge Netburn agreed to do a personal on-camera audit of the records before providing a ruling.
