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The battle between Ripple and the SEC has dragged on since December and shows no indications of ending anytime soon. However, in the last week or so, the SEC’s efforts to prevent former SEC Division of Corporation Finance Director William Hinman from being deposed failed.
The aforementioned deposition is currently scheduled for July 27, with both sides agreeing on the scope of the deposition. Hinman has declared that Bitcoin and Ethereum are not securities in lectures dating back to 2018. While the SEC maintained that these statements have no bearing on the current case, the defendants argued that they could provide light on the SEC’s and Hinman’s views on crypto in general and XRP in particular.
Moreover, the individual defendants submitted a supplemental letter on Monday to support their request for dismissal of the case. The letter noted that on 12 July, SEC commissioners Hester Peirce and Elad Roisman made statements underlining the lack of clarity in regulations, conceding that this is something the agency has been struggling with too.
In a recent podcast, Attorney John E. Deaton, the lead representative of a class of XRP holders who want to intervene in the said case, highlighted how this deposition might just be the turning point that Ripple needed. In his opinion, this is the second of the two biggest victories in the case, the first of which was the discovery of the Ethereum and Bitcoin documents as they could aid the court in deciding the Howey factors. He explained,
“If XRP is a functional equivalent to Bitcoin and Ether as far as decentralization and structure and all of that, it’s game over they win… This Hinman deposition gives them an opportunity to walk him through it.”
The attorney further expanded on the different outcomes this deposition could have, most of which could turn out in Ripple’s favor. The first would be that Hinman pleading a right to the 5th amendment, a development that would make him not liable to answer any questions that he doesn’t want to.
However, this could turn against the former SEC exec as pleading the 5th in a civil suit might point to a degree of criminality and this implication itself could look like an admission of guilt and “that in and of itself could launch an inspector general investigation into all of this.”
According to Deaton, the SEC’s offer to settle outside of court is the second most likely outcome. Both the records that the SEC has refused to turn over due to privilege and Hinman’s deposition may contain information that will aid Ripple in its future claims. Ripple, on the other hand, has no motivation to settle, according to the attorney.
“There’s not a lot of incentive for Ripple to settle unless Ripple really gets what it wants right and that would be a declaration that XRP itself today is not a security it’s not an investment contract period and then they accept some kind of small fine and the SEC can claim that they got something out of this prosecution and they can fight another day”
If the court rules in Ripple’s favour, it might set a precedent that any digital asset that the SEC wishes to prosecute in the future can use as a defence.
Another interesting scenario is if the SEC refuses to cooperate or turn over the discovery documents, and Hinman is told not to answer any questions during the deposition. As a result, the court will issue a conditional order dismissing the lawsuit with prejudice, allowing the SEC to continue regulating cryptocurrencies in the future.
It will be interesting to observe how the crypto-community handles the deposition and the current case, regardless of the outcome.