Judge allows Ripple to depose SEC official who decided ETH is not a security

San-Francisco-based fintech firm Ripple has notched up another small victory in its ongoing battle with the U.S. Securities and Exchange Commission.

U.S. District Court Judge Sarah Netburn has denied the SEC's motion to suppress the deposition of the former director of the SEC’s Division of Corporation Finance, William Hinman, in a ruling in New York on Thursday.

In June 2018, Hinman said in a speech that based on his understanding of the Ethereum network and its decentralized structure the “current offers and sales of Ether are not securities transactions.”

The deposition may add more weight to Ripple’s claim that the XRP token is not a security. If there is no appeal from the SEC, Ripple can ask Hinman to testify about the reasoning behind his decision on ETH at the time, and then attempt to apply that samrationale to XRP.

Ripple has argued that the SEC cannot regulate XRP as a security because it is a medium of exchange used for international and domestic transactions.

According to Bloomberg, the SEC fought the subpoena, saying the questioning “would subject high-level government officials to depositions regarding every law, regulation, or policy they consulted on or spoke about and that later underlay an enforcement action.”

The financial regulator also argued that it does not speak through its staff or individual commissioners but only through enforcement actions, so anything Hinman ever said is privileged as “deliberative”. The SEC told the Judge the deliberative process privilege also known as “Exemption 5” would be invoked if Hinman was deposed.

Judge Netburn stated that this was not a “run-of-the-mill SEC enforcement case,” adding that Hinman’s deposition wouldn’t “open the flood gates.” She continued to state that the case “involves significant policy decisions in our markets, the amount in controversy is substantial and the public’s interest, in this case, is significant”.

In December 2020, the SEC filed a lawsuit against Ripple alleging the firm, CEO Brad Garlinghouse and co-founder Chris Larsen, had been conducting an “unregistered, ongoing digital asset securities offering” with their XRP token sales.

In late June the SEC accused Ripple aficionados otherwise known as the ‘XRP Army’ of issuing ‘false statements’ against its leadership on social media. The regulator requested the conference to discuss quashing the motion from Ripple to subpoena the Hinman stating at the time that it would set precedence for “a parade of requests for the testimony of high-ranking government officials” and interfere with government operations.

In an outgoing speech in November 2020 just before Hinman left the agency, he cited the SEC’s record as being open to technologies like cryptocurrencies and blockchain without the need for overhauling the existing regulatory framework.