Bloomberg Law
Aug. 2, 2022, 3:47 PMUpdated: Aug. 2, 2022, 9:15 PM

Ripple Discovery Would Chill All Agency Debate, SEC Says (1)

Holly Barker
Holly Barker
Legal Reporter

Orders requiring the SEC to turn over internal documents related to a 2018 speech on digital assets aren’t just wrong on the law, they are likely to have a chilling effect on policy deliberations throughout the federal government, the agency says.

The Securities and Exchange Commission is fighting to keep Ripple Labs Inc. from getting documents related to the speech by William Hinman, then the Director of the Division of Corporation Finance.

Magistrate Judge Sarah Netburn rejected the agency’s objections based on relevance and the deliberative process privilege in a series of discovery orders this spring. The latest order, dated July 12, denied SEC’s motion to claim attorney-client privilege over the documents.

In its July 27 brief asking US District Court for the Southern District of New York Judge Analisa Torres to toss Netburn’s orders, the agency argues that the speech didn’t reflect SEC policy, but rather what advice his division would give the agency.

Although the SEC maintains that it isn’t bound by Hinman’s speech, it says that Hinman’s remarks still provided “meaningful information” to the public about the division’s approach to regulating digital assets. The communications surrounding the speech therefore ought to be protected by the deliberative process privilege, it says.

In other words, the agency would like to have it both ways, which Netburn has said pointedly, more than once, that it cannot do. Either the speech was intended to reflect agency policy, or it wasn’t, Netburn said.

In the speech, delivered at a Yahoo Finance All Markets Summit in San Francisco on June 14, 2018, Hinman explained, among other things, how the agency might analyze sales of digital tokens as “investment contracts” under SEC v. Howey.

Hinman also said that, in his view, offers of sales of Ether—a digital token that Ripple has said it understood to be similar to XRP, the digital asset and allegedly unregistered security it developed—weren’t securities transactions, at least “in their present state,” due in part to Ethereum, the decentralized network Ether traded on.

The SEC’s objections characterize Hinman’s remarks as an invitation for industry to consult with SEC staff, rather than a statement of agency policy, but some in the profession didn’t see it that way.

According to Foley & Lardner LLP partner Pat Daugherty, many securities lawyers understood that Hinman’s guidance could be relied upon for advising clients, not as a framework for approaching agency staff.

Daugherty leads the firm’s digital assets practice, but spent time inside the SEC when he served as counsel to former SEC Commissioner Edward Fleischman in Washington.

Informal Procedures

Hinman wasn’t conveying official agency policy in his speech because a majority of commissioners had “voted not to approve its content,” but that doesn’t mean the communications around his speech weren’t agency business, the SEC claims.

Senior agency officials “routinely give speeches that provide meaningful information to the public about staff approaches to legal and policy issues, even if those approaches do not formally bind the agency itself,” the agency argues.

Whether the speech was or wasn’t adopted by the SEC is something that Ripple contests.

If the speech in fact reflected agency policy, “then that really heightens the impact of that speech for Ripple’s fair notice,” Ripple’s counsel argued when it was seeking to take Hinman’s deposition last year.

In 2018, those who practiced in the field “were desperate for some guidance—any guidance—from the SEC or its staff,” Daugherty told Bloomberg Law.

He said he told an SEC staffer as much while at the Ray Garrett Institute at Northwestern University, held about two months before Hinman’s San Francisco speech.

She replied that he was “working on a statement that he would be delivering soon, as indeed he did. The plain implication of her comment was that the Bar would have guidance that it could rely upon in advising clients,” he said.

After former SEC Chairman Jay Clayton testified on Capitol Hill a couple of weeks later and referred to Hinman’s speech “in a manner that was obviously intended as an endorsement,” lawyers in the field understood that they “could rely on what the SEC’s Chairman had to say as well as what the Director of Corp Fin had to say,” Daugherty said.

“There was no daylight between their views,” he said.

Even if not official agency policy, according to Hinman’s deposition testimony, the Division of Corporation Finance “generally, but not always” applied the framework he outlined in his speech.

He said there were “other factors that may be relevant that are not in the framework, things that are more derived from the Gary Plastics case, for one.”

But Gary Plastic itself was also featured in the speech, with Hinman saying it “teaches us that the instrument can be part of an investment contract that is a security.”

According Daugherty, the bar “always” relies on speeches and other informal communications by SEC officials. “I learned this myself while working at the SEC. It is especially important in areas of the law where the terrain is novel and the precedents scarce, as was the case with digital assets in 2018 and is still the case today,” Daugherty said.

In Daugherty’s view, the “present Commission seems intent on keeping the law obscure, so that it can pursue a policy and practice of regulation by enforcement rather than regulation by regulation.”

This feature was adapted from this week’s Bloomberg Law—Litigation newsletter. Bloomberg Law subscribers may sign up here.

(Updates with paragraphs 21 through 23, referencing Hinman deposition testimony.)

To contact the reporter on this story: Holly Barker in Washington at

To contact the editors responsible for this story: Rob Tricchinelli at; Nicholas Datlowe at