Magistrate Judge Denies Reconsideration of Discovery Order, Permits Ripple Use of SEC Speech Docs

On Monday, a Southern District of New York court denied the Securities and Exchange Commission’s (SEC) motion for partial reconsideration, but granted clarification of its January discovery order, which held in relevant part that emails concerning and draft versions of a 2018 speech given by then-Director William Hinman were not shielded by the “deliberative process privilege.” 

The high-profile case concerns allegations that defendants Bradley Garlinghouse, Christian Larsen, and Ripple Labs Inc. are currently engaging in the unlawful offer or sale of securities, and that board chairman Larsen and CEO Garlinghouse aided and abetted Ripple’s violations. 

Last month, the court rejected the individual defendants’ bid to exit the case. The same opinion however, permitted the defendants’ fair notice defense, a crucial one, to stand.

This week’s ruling explained that the defendants sought certain documents from the SEC to challenge the agency’s allegations that Larsen and Garlinghouse were objectively reckless in believing that Ripple’s digital token, the XRP, was not a security and that Ripple was on “fair notice” that XRP was a security. After the court initially ruled the documents relevant, the SEC searched its files and raised objections to the production of certain contested documents on the ground that they were protected by the deliberative process privilege.

The court engaged in an in camera review of exemplary documents and based on that review, granted the defendants’ motion to compel.

In this week’s opinion, the court noted that a motion to reconsider a prior ruling is an extraordinary request granted only under strict circumstances. The SEC did not allege a change in controlling law, but did argue that the court overlooked two key facts in its privilege ruling.

The nine-page opinion declined these arguments, holding that the SEC failed to demonstrate that any matters were overlooked. “However, mindful of the ‘important public interests’ served by the privilege, the Court agrees that clarification will aid the parties,” Magistrate Judge Sarah Netburn wrote.

In its clarification, the court explained that the SEC could not redact edits to the speech as they “were not part of deliberations about how to communicate agency policy.” By contrast, Judge Netburn said that the SEC may seek leave to redact communications between staff discussing the speech in the context of how it implicates other, separate agency deliberations. 

Ripple Labs is represented by Kellogg, Hansen, Todd, Figel & Frederick P.L.L.C. and Debevoise & Plimpton LLP.  

Garlinghouse is represented by Cleary Gottlieb Steen & Hamilton LLP and Larsen by Paul Weiss Rifkind Wharton & Garrison LLP.