EXHIBIT 20

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UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK 

------------------------------x 

SECURITIES and EXCHANGE 

COMMISSION, 

 Plaintiff, 

 v. 20 Civ. 10832 (AT)(SN) 

 Remote Proceeding 

RIPPLE LABS, INC., et al., 

 Defendants. 

------------------------------x 

 New York, N.Y. 

 April 6, 2021 

 2:00 p.m. 

Before: 

HON. SARAH NETBURN, 

 U.S. Magistrate Judge 

APPEARANCES 

SECURITIES and EXCHANGE COMMISSION 

 Attorneys for Plaintiff SEC 

BY: JORGE G. TENREIRO 

 DUGAN BLISS 

 DAPHNA A. WAXMAN 

 JON A. DANIELS 

 LADAN STEWART 

CLEARY GOTTLIEB STEEN & HAMILTON, LLP 

 Attorneys for Defendant Bradley Garlinghouse 

BY: MATTHEW SOLOMON 

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 

 Attorneys for Defendant Christian A. Larsen 

BY: MARTIN FLUMENBAUM 

 MICHAEL GERTZMAN 

 MEREDITH DEARBORN 

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(The Court and all parties appearing telephonically) 

THE COURT: Good afternoon, everybody. This is Judge

Netburn. Let's begin by calling the case and then I want to

address a few housekeeping matters before we address the motion

that's before me today.

This case is SEC v. Ripple Labs Incorporated, the

docket no. is 20 Civil 13832. Let me first confirm that our

court reporter is on the line.

OFFICIAL REPORTER: Good afternoon, your Honor.

Pamela Utter with Southern District Reporters.

THE COURT: Wonderful. Thank you.

On behalf of the SEC?

MR. BLISS: Good afternoon, your Honor. This is Dugan

Bliss. Joining me are my colleagues, Jorge Tenreiro, Daphna

Waxman, Jon Daniels, and Ladan Stewart.

THE COURT: Thank you. And will you be speaking

primarily on behalf of the SEC?

MR. BLISS: I will, your Honor.

THE COURT: Thank you.

And on behalf of defendant Ripple Labs?

MR. KELLOGG: Good afternoon, your Honor. This is

Michael Kellogg. With me on the phone are several colleagues,

but I will be the one speaking on behalf of Ripple Labs.

THE COURT: Thank you.

On behalf of defendant Bradley Garlinghouse?

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MR. SOLOMON: Good afternoon, your Honor. Matt

Solomon from Cleary Gottlieb and, like Mr. Kellogg, there is

other Cleary lawyers on the phone but I will be speaking on

behalf of Mr. Garlinghouse today. Thank you.

THE COURT: Thank you.

On behalf of defendant Christian Larsen?

MR. FLUMENBAUM: Good afternoon, your Honor. This is

Martin Flumenbaum from Paul Weiss. With me are my colleagues,

Mike Gertzman and Meredith Dearborn, and Mr. Gertzman will be

the principal spokesperson for this hearing for Mr. Larsen.

MR. GERTZMAN: Good afternoon, your Honor. This is

Michael Gertzman.

THE COURT: Thank you. All right. Good afternoon.

I hope everybody on the call is healthy and safe, as 

well as our audience listening in. Let me first address the 

audience. I understand that we have 500 people listening in. 

I understand that we have maxed out our capacity to have people 

listening to the conference. We apologize for that. We will 

see if we can make arrangements to increase the limit from 500 

but that is the full capacity for today's conference. Related 

to that, earlier this morning I was conducting other business 

and approximately 175 individuals called in this morning -- 

into my conference line that I ordinarily use for court 

conferences -- thinking that our 2:00 p.m. conference was 

scheduled for this morning. And that lasted for several hours 

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constantly interrupting my other cases. I then issued an 

emergency order which I think stemmed that flow of people 

calling in during my other court conferences. We will make 

every effort to keep these conferences open to the public. We 

have every intention of accommodating as many people as we can 

and doing everything that we can to facilitate an open hearing 

as though we were in the court house but I do need everybody 

who wants to participate to pay attention to when conferences 

are held. This is not my only case and having 175 people 

calling in, interrupting my court conferences, was incredibly 

disruptive this morning, and so I will request and urge that 

anyone who wants to listen in is welcome to listen in but 

please make sure that you are calling in at the right time. I 

know a number of you were calling in from abroad and so maybe 

there was some confusion as to how to calculate the time. 

Please, use the Internet or some way to make sure you are 

calling at the right time that the conference is scheduled for 

so that that problem that happened this morning, which as I 

said, was incredibly disruptive to my morning conferences, does 

not repeat itself. 

The second housekeeping matter I want to raise is with

respect to recording or rebroadcasting of today's proceeding.

That is strictly prohibited. Let me say that again. It is

prohibited for anyone to record or rebroadcast today's

proceeding. That has been the law in the Southern District of

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New York for as long as the court has been around and it is the

oldest court house in the country. We have a court reporter

here, she is excellent, and she is transcribing every single

utterance and that record will be made available to the public

through the court's filing system but it is impermissible to

record the conference and post it on YouTube or any other

platform for the public to see. That is a violation of our

court rules and it is a violation of my order directing

everybody not to record or rebroadcast today's proceeding.

So, I want to make those points as clear as possible 

so that we don't find out, as we did after our last conference 

that the conference was recorded and then it was broadcast onto 

YouTube. 

Okay. With those housekeeping matters completed let's

turn to the reason that we are all here today which is the

application filed by the defendants and a letter filed on March

15 regarding discovery requests that were served on the SEC. I

have received the defendant's letter, again filed March 15th,

the SEC's response filed on March 22nd, and the defendant's

reply which was filed on March 24th and I have reviewed all of

those in preparation for today's proceeding.

Why don't I turn first to the SEC, even though this is

defendant's motion, but since the defendants filed a reply

brief I would like to turn first to the SEC so I guess I will

address my questions to Mr. Bliss.

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Mr. Bliss, let me ask you a few questions. I

understand that a number of the arguments that you raise in

opposing the discovery that is sought is by citing other cases

that address two different factors, one is the question of

whether or not other cryptocurrencies, namely BitCoin and Ether

whether discovery related to those assets could be discoverable

in cases here and you cite to a couple of cases including the

Kik case where Courts have held that discovery related to other

assets was not appropriate. So, I would like to ask you

whether or not in any of those cases you had individual

defendants that were sued where questions about recklessness or

knowledge was at issue, or whether all of those cases that you

cite were cases brought exclusively against the alleged issuer.

MR. BLISS: Yes, your Honor. So, those were cases

brought against issuers, not against individuals, although I do

believe that we explained in our letters why we think the

reasoning applies.

THE COURT: Let's talk about that a little bit. Go

ahead.

MR. BLISS: So, I am happy to expand. So, defendants

asked for these documents because essentially they're asking

that the Court look at how XRP was viewed and somehow it would

be relevant to look at how Bitcoin and Ether are viewed as

well. Defendants summarily claim that Bitcoin and Ether are

like XRP but that is simply wrong and defendants know better

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than anyone how XRP is different from those digital assets, and

I think, your Honor, if you look at that and just on the facts

as we have alleged them, it is clear why the arguments are

making -- don't make sense. So, among other things, we alleged

in our complaint at paragraph 53 that back in 2012, Ripple and

Mr. Larsen received legal memos stating that XRP could be

considered a security including because Ripple was responsible

for promoting and marketing XRP and --

THE COURT: Can I stop you for one moment?

MR. BLISS: Yes. 

THE COURT: Sorry, Mr. Bliss.

I just want to remind you that we are on an open and 

public line and to the extent there was any information that 

was filed under seal, I don't know if what you are talking 

about covers that, but I just want to remind everybody that 

there were documents that were filed under seal here and that 

should be honored. 

MR. BLISS: Absolutely, your Honor. And to be clear,

I am only going to reference facts that we alleged in the

complaint, although there were additional facts filed under

seal that I will not be mentioning during this argument.

THE COURT: Thank you. All right. Proceed.

MR. BLISS: Certainly.

So, additionally, all 100 million XRP in existence

were created in 2012 and were controlled by Ripple and its

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founders as we allege at Complaint paragraph 46. Now, in

contrast, Bitcoin and Ether are mined on an ongoing basis,

meaning that totally unrelated people from around the world

performed calculations with computers that unlock new coins

which those people can then hold or sell themselves. And

unlike Bitcoin and Ether, Ripple and Mr. Larsen, and later

Mr. Garlinghouse, themselves offered and sold XRP all from that

100 million XRP that was originally created that was part of an

ongoing offering that continued from at least 2013 to the

filing of the complaint and raised about $1.4 billion for

Ripple and enriched Mr. Larsen and Mr. Garlinghouse by about

$600 million as we allege in paragraph complaints paragraphs 1

through 8.

So, the point is there was never a central promoter

profiting from an ongoing offering of Bitcoin or Ether. So,

XRP is nothing like those other digital assets. And so,

however defendants try to explain the basis of the relevance of

the Bitcoin and Ether documents, we just believe there is no

supporting basis. We did, obviously, highlight several cases

that did not analyze or, rather, did not analyze Bitcoin and

Ether, Zaslavskiy, Telegram, Kik as you noted. I do agree that

those did not involve individual defendants but there is

nothing about the inclusion of individual defendants in our

case that somehow makes these coins that are not at issue in

our case relevant to the proceedings here.

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THE COURT: Can I ask you a question, Mr. Bliss? If

you are saying to me, Judge, they shouldn't get documents

related to Bitcoin and Ether because those are just totally

different assets, they have nothing to do with XRP; if I am to

make a discovery ruling on that conclusion, wouldn't I just be

deciding the case? Because as I understand it the defendants

are saying, well, actually, there are many ways in which they

are similar and we are at discovery and we are entitled to

pursue our own defenses and one of the defenses that we are

going to make -- maybe we will be successful and maybe we

won't -- but one of the defenses is, hey, we are just like

those guys and so we want to build-up that defense.

So, it seems to me, if I understand your argument,

that if I were to agree with you and say you are right, these

are different assets and they shouldn't get discovery I would

basically be deciding the case.

MR. BLISS: Your Honor, I understand where you are

coming from but in response, no. For instance, defendants own

cited case law I think really establishes that. Because the

case law that is out there, such as the Marine Bank Supreme

Court case, says that in doing the analysis that the Court will

ultimately have to do in this case that the Court has to look

at the character the instrument is given in commerce by the

terms of the offer, the plan of distribution, and the economic

inducements held out to the prospects. That's the Supreme

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Court's Marine Bank decision. In other words, the focus is on

the promoter. In Section 5 cases, be they, you know, crypto,

digital asset cases, or otherwise, the question is how did the

promoter offer this instrument? Was it offered as an

investment? Was it something else? There is absolutely no

case law supporting the idea that pulling in some unrelated

asset that somehow adds to the analysis matters and so, no,

there wouldn't be pre-judgment of the case because the case,

from the outset, needs to be focused on XRP, not on these other

assets that have nothing to do with whether XRP is a security.

THE COURT: That brings me to another question that I

was going to ask you which is is it your view that the Howey

factors, when the Court is evaluating those, that the Court

should be looking exclusively at -- from the point of view of

the alleged issuer, meaning all that really matters, all that

should be concerned is how XRP or Ripple Labs introduced itself

to the world, how it made its offers -- I'm not using that word

in the legal term -- but how it promoted and presented itself

and that the Courts would not be looking at the marketplace,

the community, and how what was being offered for sale was

being interpreted by the rest of the community.

MR. BLISS: Well, I think, your Honor, that several

cases have dealt with this including the Warfield case out of

the Ninth Circuit which found that it's possible that some

factors, in terms of market understanding of third-parties are

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relevant, but the Warfield case found, did "we must focus our

inquiry on what the purchases were offered, were promised." 

And so, there are certainly are factors about market

understanding that are relevant but case after case -- Marine

bank, Warfield, and others that we discuss -- keep going back

to the offer and the promise made by the promoter. So, the

case is focused from a legal perspective and should be focused

from a discovery perspective on that. To broaden it and to

bring in these unrelated coins, it simply goes far beyond what

the law provides and how to decide these Section 5 cases.

THE COURT: Thank you.

So, we were talking a moment ago about individual

liability and you were, I believe, expressing the view that the

claims against Garlinghouse and Larsen don't change the

analysis from any of these other cases that have been relying

on.

Can you discuss with me more a little bit why that is 

your thinking? 

MR. BLISS: Sure.

So, I think that's one of the reasons why the

defendants assert that it somehow does change, it relates to

the claimed lack of due process or fair notice that they claim

to have not been given but, as we cited, and in particular the

Kik case focuses on that issue. It makes clear that the law

does not require the government to reach out and warn all

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potential violators on individual or industry level and I

think, more importantly for today's purposes, the Court in Kik

ruled that the vagueness inquiry does not call for a factual

investigation, and to whether the statute has led to arbitrary

enforcement it asks objectively whether the statute authorizes

or even encourages arbitrary and discriminatory enforcement.

So, whether it is based on the individual's scienter,

affirmative defenses, or standard liability under Section 5, we

are talking about objective facts that matter. The Howey test

raises objective questions based on the facts known to

defendants. The due process and fair notice defenses raise

objective questions about the statute and so none of these

various issues that have been raised by the defendants or, in

particular, the individual defendants, provide any basis to

expand discovery into assets that are not at issue in the case

and, as we point out in our letter, we certainly don't believe

that they have identified a single case that has done that or

that would support doing that.

THE COURT: Thank you.

Let's change focus now. Can you talk about, more

generally, setting aside the Bitcoin and Ether documents but

even with respect to the XRP documents, the SEC's position with

respect to searching communications with third-parties, other

government agencies, and searching more broadly even within the

SEC. I understand that that has been only to look at its

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investigative files and only half of the custodians that were

sought. So, can you talk to me about the SEC's position with

respect to what I will call the XRP documents?

MR. BLISS: Yes, I am happy to do that, your Honor.

Fist of all, we did agree, as part of this meet and

confer process leading up to the March 15 letter, that we would

review the e-mails of nine custodians who are high-ranking SEC

individuals for the terms "XRP" and "Ripple" that occurred in

external e-mails, meaning any communication that went outside

of the SEC itself so it could be to a complete third-party, to

another government agency, something like that, that we would

review those and produce responsive non-protected

non-privileged documents to defendants. So, we are in the

process of doing that. In terms of going beyond that -- so

obviously I have explained in some detail, both in the letter

and today, why we don't think that Bitcoin and Ether are

relevant and so why we didn't agree to search beyond that.

There are two additional parts to your question, one is the

searching for the internal XRP and Ripple documents and,

finally, I will get to the custodians themselves.

As for the internal XRP and Ripple documents, our 

view, in coming up with this offer during the meet and confer 

process, was that even though we don't believe that any of 

these communications, you know, with third-parties between SEC 

individuals and the outside world about XRP, are of any 

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relevance. Nonetheless, to try to accommodate defendants' 

theory that somehow that would reflect the market view of XRP, 

we did agree to produce those documents that are non-protected 

because there would be third-party communications that would 

presumptively not be protected. But when it comes to -- 

THE COURT: Can I interrupt you for definitional

clarification?

MR. BLISS: Yes.

THE COURT: You are talking about internal

communications, and when I think of internal communications I

think of SEC staffer to SEC staffer as an internal

communication but it sounds like you are referring to a

communication from an SEC staffer to somebody outside the SEC.

So, I just want to be clear what I am talking about.

MR. BLISS: I apologize, your Honor. I clearly was

confusing the way I said it. I am referring to the internal

communication being e-mail communications between SEC staffers

or potentially commissioners, but essentially e-mail from one

SEC.gov address to another. If there is an outside e-mail

address involved I would characterize that as an external

communication.

THE COURT: So now we are just talking about internal

SEC to SEC.

MR. BLISS: Yes.

And so, the internal communications really fall into

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two buckets; one is that the defendants have asked for internal

communications that reference external communications. We

think that it would be unnecessarily burdensome and duplicative

to conduct that review because we are already going to be

producing the external communications themselves and so it

would be a lot of review to simply produce information related

to what we are already producing. Now, the other set of

documents would be the internal discussions that if two folks

from one the SEC were, for whatever reason, discussing XRP or

Ripple. Now, we believe that those are completely irrelevant

because there was no communication of those views to the

outside world to influence the market view as defendants are

looking for, and so there is simply nothing of relevance. In

addition, as we pointed out in our letters, when you are

talking about internal agency communications you are getting to

the heart of deliberative process and other privileges and

while we have not reviewed all of those documents and while I

can't say for certain that any particular document would be

covered by the deliberative process privilege, law enforcement,

attorney-client, or work product, we also believe that a

substantial chunk of any review like that would be of protected

e-mails and so it would be asking us to search for irrelevant

and protected e-mails which we just feel that it is a

disproportionate burden in the case.

Finally, your Honor, if you would like, I am happy to

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go into a little bit more detail about how we selected the nine

custodians out of the 19 suggested by defendants. If your

Honor wants to do that I would suggest that I will do that by

referring to initials rather than names given the nature of

these proceedings, if that's acceptable.

THE COURT: That is certainly acceptable to me. I am

happy to hear from you on your views generally.

MR. BLISS: Yes, your Honor.

So, as to the custodians, we first of all identified a

number of custodians on our own before the custodians were

suggested by defendants. They then provided a list and there

was a substantial overlap between the ones that we already

picked and the ones that they wanted. And so, what we did is

that we had internal discussions to identify which individuals

in which division or other part of the Securities and Exchange

Commission would have potentially had communications with

third-parties -- with the outside world -- about Ripple or XRP.

And so, we identified two or three of the most relevant and

highest ranking people within the divisions of trading and

markets, divisions of investment management within the division

of corporate finance, as well as FinHub which is a subpart of

CorpFin dealing specifically with digital technology. And so,

based on that we believed that we had identified the most

relevant custodians. We cross-referenced that with the initial

disclosures put forward by defendants to make sure that if they

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had identified any individuals from the SEC they were included

on that list and we did that. And so, that is how we arrived

at the nine individuals that we are currently searching for

e-mails in their boxes and those would be initials EB, DB, WH,

JI, JM, BR, VS, AS, and MV.

Now, there are 10 additional custodians that were

suggested by defendants who we don't believe -- we have not

agreed to search the e-mails and we do not believe we should be

ordered to search the e-mails and so there are a few reasons

particular to different individuals. So, as to the individuals

with the initials FA, KL, and JB, these are people who are in

or were in high-ranking positions within the division of

enforcement who either were involved in the investigation

leading to, or who in the case of JB we have no reason to think

that there were third-party communications about XRP or Ripple.

So, for the other two, we think that's -- and the review would

show documents related to the investigation, not the type of

third-party communications that we understand defendants to be

seeking.

There are a few custodians who we believe are simply

duplicative of others and so those would be with the initials

SGB, RC, MR, and NS, who are largely are or were in the

division of corporate finance or the cyber unit. And, from our

understanding of how communications are made within those

divisions involving those people, we believe that searching

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those e-mails would largely produce duplicative results. In

other words, if those people were involved with communications

with the outside world, based on our own internal diligence, we

believe those communications would nevertheless show up in the

mail boxes of those custodians we are already searching.

And then, finally, there are three additional

custodians suggested by defendants with the initials JC, HP,

and ER, and those individuals are either current or former SEC

commissioners or chairs and our understanding is that those

individuals would have been unlikely or less likely to have

communicated with the outside world about XRP or Ripple by

e-mail but that has not been the standard practice. And so, we

did not agree to search those mail boxes on that basis. And I

apologize, that's a bit of a lengthy explanation, but that was

our analysis of each of the proposed custodians.

THE COURT: No, that was helpful. Thank you very

much.

Let me turn to Mr. Kellogg who I assume is going to

take the lead here.

MR. KELLOGG: Thank you, your Honor.

I think Mr. Bliss' discussion really highlights why we

need and why we are entitled to the information about Bitcoin

and Ether. At issue in this case is almost how to apply a

90-year-old statute and 75-year-old Supreme Court precedent to

something that only came into existence quite recently which is

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cryptocurrencies. The SEC has not provided a lot of guidance

on that issue and they have been widely criticized for not

doing so but we do have some data points to look at. On the

one hand there is the well publicized conclusion that two

digital currencies -- Bitcoin and Ether -- do not run afoul of

the how we test and are not securities. On the other side of

the spectrum they have their initial coin offering cases, you

will see reference to DOW tokens, and you mentioned Kik and

Telegram, and they have said that those are securities because

an initial coin offering is just like a fundraising tool

created to start creating and deploy future crypto. So, in

that context, digital coins or tokens are really shares in the

enterprise that will be created when funds are raised. The

question here, at the great risk of oversimplifying an

important issue, is whether XRP is in relevant respects like

Bitcoin and Ether, or whether it is like the tokens in the

other digital asset cases the SEC relies on. So,

understandably we are seeking documents exchanged between the

SEC and third-parties about Bitcoin and Ether and why they are

not securities so that we can apply that to our own XRP.

Now, the SEC claims we are not entitled to those

documents because Bitcoin and Ether are "unrelated digital

assets" and therefore irrelevant to the Howey test. Instead,

they claim that XRP is indistinguishable from the DOW tokens

and the initial coin offerings but that is a classic legal

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argument based on precedent. Is the unique instrument we are

dealing with today, is it more like precedent A or is more like

precedent B? And perhaps the most telling fact on that motion

is that the SEC, itself, is seeking comparative information

about XRP and other digital assets. It made clear just last

week, as part of the meet and confer process -- and I want to

quote this because it is quite remarkable given the argument he

is making here -- they said to Ripple, "We request that you

also search for and produce documents relating to comparisons

to assets that have been the subject of SEC enforcement action

for being securities under Howey." In other words, they want

to see comparative information of how XRP relates to other

digital assets but only if they think it helps their case. If

it helps our case then they argue that the assets are unrelated

and information about them should be excluded. Now, that's not

the way Rule 26 works. The question is whether requested

discovery is relevant to any party's claim or defense. And as

the Court explained in Palm Bay International and as you

yourself noted earlier, and I quote here from the case: It

would be inappropriate for the Court, at this discovery stage

in this litigation, to make any substantive determination

regarding a disputed defense. That determination is properly

made upon a motion for summary judgment or a trial before the

district judge.

So the SEC, in essence, wants summary judgment on this

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aspect of our defense but they don't get it in a Rule 26

dispute; all we need to show is the relevance of it to any

defense that we might offer. Now, I am happy to walk through

the merits on why we think that Bitcoin and Ether are in fact

like XRP, they are the three major digital currencies in use

today and I can go down a check list of factors that they share

in common. Indeed, I can also add factors that show that XRP

has certain advantages over Bitcoin and Ether that makes it

even less like a security in the SEC's telling and under the

Howey test. Again, though, that isn't relevant, the merits

right now. What is relevant is that we have got a legitimate

defense that we think we should be able to press. The SEC has

published a 38-factor test for when a particular coin or

cryptocurrency is a security or at least factors that they say

you should take into account but they have made no effort to

weight those factors in any way or provide actual guidance for

the marketplace so we are left in the position of saying, okay,

these two -- Ether and Bitcoin -- you have said that they're

not securities. These over here -- DOW, Telegram, Kik -- they

are securities. We can gather evidence to support our view of

why XRP is like Bitcoin and XRP, part of which will show under

the Howey test that the Price of XRP moves in conjunction with

the digital currencies Bitcoin and Ether, not with anything

that Ripple is doing to promote those which is extremely

relevant under the Howey test. The SEC is incorrect that Howey

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somehow silos XRP and treats it in isolation as if Bitcoin and

Ether did not exist. That's not the way the Howey test works.

As the case law indicates and, actually, as the SEC itself

concedes, whether XRP is a security is a fact-specific inquiry

that necessarily turns on the totality of the circumstances.

So, we need to investigate the circumstances under which

Bitcoin and Ether are not securities, as well as the

circumstances under which that the SEC wants to indicate what

in DOW and Kik are. The case Law says Howey turns on the

character of the instrument in commerce and what objective

participants were led to expect, and XRP's character in

commerce, what people were led to expect, is shaped by the

SEC's own messaging to the public about Bitcoin and Ether,

similarities between those currencies and XRP and its eight

years of non-action against XRP. All of that led market

participants and Ripple itself to conclude that XRP was not a

security. But, definitely relevant to the Howey test, as you

pointed out, it has great relevance both to our fair notice

defense because if we -- and the Second Circuit put it in

Upton -- if the SEC failed to give, "a person of ordinary

intelligence" a reasonable opportunity to know what is

prohibited and they are not put on fair notice that the SEC

would suddenly, after eight years decides that it would treat

XRP as a security and the same as Mr. Solomon and Mr. Gertzman

will elaborate, the same applies whether the individual

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defendants were reckless or had knowledge that XRP would be

found to be a security.

Now, we have already found documents from

third-parties going to various market participants like

cryptocurrency exchanges and hedge funds, met with the SEC

specifically seeking guidance on whether they could list and

transact in XRP along with Bitcoin and Ether or whether XRP had

to be treated as a security. They presented their own analysis

to the SEC about why XRP was not a security. And after the

meeting they proceeded to list XRP on their exchanges or invest

in XRP in their funds. So, obviously they reached the

conclusion that XRP was not a security and was not told

otherwise by the SEC. So, materials on those meetings between

the SEC and third-parties were shaping market expectations

about XRP and are highly relevant to our argument that we are

like Bitcoin and Ether and not like the initial coin offerings

at issue in Telegram. And the SEC obviously cannot dispute

that its communications with these third-parties about how XRP

compares with Bitcoin and Ether and are not securities are

plainly relevant to our defenses and Rule 26 requires no more.

If I may move on I will turn to the SEC internal

documents and we are talking about documents concerning XRP

itself, as well as documents about how XRP compares to Bitcoin

and Ether and why the latter aren't securities.

THE COURT: Mr. Kellogg, I just want to raise the same

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definitional points that I raised with Mr. Bliss which is if

you can be clear about whether you are speaking about documents

within the SEC, meaning SEC staffer to SEC staffer at whatever

hierarchy, versus documents between someone at the SEC and

someone outside of the SEC, whether that's another government

agency or a market participant or whomever.

MR. KELLOGG: Yes, your Honor. I am now talking about

the former, purely internal SEC documents, but one of the

reasons why such documents are relevant is that to the extent

that they're reflecting their communications in meetings with

third-party, they'll reveal market views on XRP and additional

contacts that external communications alone would not show.

The internal communications don't have themselves to be

admissible to be discoverable under 26(b)(1). Now, as I noted,

the SEC is the focal point for requests for regulatory guidance

as to whether XRP was a security. There are more than 200

currency exchanges (inaudible) creating an XRP before the suit

was brought and at least as many companies after using XRP in

their business plans. We can't track down every one of those

companies to find out their interactions with the SEC but the

SEC's own internal correspondence, summaries of meetings,

communications, reports of communications the SEC may have had

with market participants, e-mails about meetings just

concluded, arguments made by participants in those meetings,

those will all provide us with a shortcut to clearly admissible

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evidence about third-party views.

The second point here is it is part of the SEC's

mission statement to study and understand market conditions.

There almost certainly are documents in their files that

reflect not SEC deliberations but market conditions and

investor expectations regarding digital currencies studied by

the SEC and that evidence goes squarely to the Howey inquiry.

As the Second Circuit held in the Glen-Arden case, to properly

apply Howey the Court must consider what investors

contemplated, their understanding of what defendants would do

to turn a profit, and market condition. Those are market facts

and no one is in a better position to have studied those market

facts than the SEC. And to stress we are not talking about

deliberations, we are not talking about what led to their final

enforcement decision, we are talking about their gathering

reports and otherwise on-market facts.

And the third reason why the internal communications

are important is they're likely to show that the SEC was

flailing when it came to the application of the Securities Act

of 1933 in digital currencies. It is understandable that they

want to keep such documents hidden but they chose to bring this

case and such documents would support the individual

defendants' lack of knowledge or recklessness and Ripple's lack

of fair notice. It will also reflect the SEC's own knowledge

about market uncertainty and how the SEC chose to respond or

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not to respond to that uncertainty. Let me just give one

example: We have a copy of a communication that the SEC has

made about XRP to the public saying that after a request was

received on whether XRP is like Bitcoin and Ether or not in

which the SEC -- this was just two months before they filed the

suit -- we haven't made any decision about XRP, we are not in a

position to say anything about XRP. But their internal

communications on that issue are likely to reveal deficiently

substantial uncertainty that no market participant could have

been on fair notice as to how the SEC would come out in that

case.

Finally, if I may, I will address burden and

privilege. Mr. Bliss did not press burden particularly much

and for good reason. The burden of complying with our request

is far less than complying with the SEC's own request. We have

the statistics laid out at page 5 in our reply. What we are

requesting is also proportional to the needs of the case

considering the importance of the issues at stake, the amount

in controversy, and the parties' relative access to

information, all of which are factors are relevant under

26(b)(1). And that's also true of custodians. We sought

documents from 19 custodians compared to the 30 custodians the

SEC sought from us. All 19 were centrally involved in meetings

with market participants and understanding the character of

digital currencies and commerce. And, if they were following

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government protocols, all of their communications would be over

the SEC.gov handle and, hence, readily searchable. The SEC

unilaterally cut down our list to nine custodians and as we are

holding information from the other 10 if we just ask, if not

more likely, to have responsive documents. They picked our 30

custodians, we didn't get to pick and choose. They don't get

to pick and choose anymore who the custodians we want them to

search are, as long as it is proportional to the importance of

the case an the needs of the parties. And I am happy to go

through all of the examples. I think one of them is

particularly important, I am only talking about publicly

available information so there is no invasion of privacy here

but the Commission's former chairman is the one who authorized

the suit against XRP on his last day in office, thereby causing

a huge and immediate drop in XRP's market value, yet

Mr. Clayton has actively embraced Bitcoin and Ether. Indeed,

he was the face of the agency meeting constantly with market

participants and receiving studies on the features and roles of

each of those digital currencies in commerce. He was even

writing to Congress about them. Based on these meetings and

studies, he obviously concluded that XRP is a security but

Bitcoin and Ether are not. That has enormous market

consequences and we should have the right to seek documents and

meeting memos as set forth to the critical features and market

perceptions of each of the three digital currencies.

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Now, as to privilege, communications with

third-parties about Bitcoin and Ether are obviously not

privileged, just to go back to the first step in the

discussion. None of those things are privileged. Nor should

internal documents be to the extent that they're about market

conditions. Case law draws a clear distinction between factual

material and deliberative process. Moreover, the fact that

some documents may be privileged is not a basis to refuse to

conduct search. Even some documents that are privileged,

whether it's deliberative process, litigation privilege,

they're subject only to a qualified privilege which means that

we may be entitled to argue as to specific documents if we have

a compelling need for them and no other source to fill that

need. But, we can develop those arguments only if the SEC does

what Rule 26 requires which is review the documents and prepare

a privilege log.

Those are the points I wanted to make, your Honor, and

I am happy to answer any questions.

THE COURT: Let me ask you a question with respect to

the documents related solely to Ether or Bitcoin.

My understanding is that in 2018 the SEC announced its

decision that those two assets were not securities. Is there

any reason why you would need or be entitled to communications

in any form that relate solely to Bitcoin and Ether that

post-date that decision?

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MR. KELLOGG: First of all, ones that post-date a

decision are not subject to the deliberative process

whatsoever, they're considered the development of the law by

the SEC and so there is no privilege for such document to the

extent that they reflect the SEC's understanding of just why --

an elaboration of just why Bitcoin and Ether are not

securities. Now they announced this to the public -- or rather

the director of their corporate finance division announced this

to public in a speech in 2018 but it will read that speech in

vein for any details about just what it is that makes Bitcoin

and Ether not a security where it is something like a digital

currency like XRP is a security. They talk about, for

example -- I mean we can go over the assets. They say it has

a --

THE COURT: I will stop you. Sorry. I will stop you.

MR. KELLOGG: Okay.

THE COURT: I don't need to go over the assets but my

question is if one of the reasons why you want to look at

Bitcoin and Ether communications or documents, I believe

exclusively to those assets, is because you want to see what

the SEC was thinking, what it was saying to other market

participants about how it was viewing these assets. But, we

know that come 2018, when the speech is given, we know what

they think because now they're going public with it whether in

a sort of speech or otherwise, and presume that that decision

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was well thought out before the speech was given. And so my

question to you is, after that public announcement in whatever

fashion and in whatever opaque way it was made, after that

announcement why would it matter what they were saying about

those assets since the market now had that information and

would act accordingly?

MR. KELLOGG: Because the reasons for the decision are

certainly less than clear. As I said, they later came up with

the framework for investment contract analysis, the list of 38

factors with no explication. So, the reason why subsequent

communications, you could say everybody was coming to us and

saying, Okay, you now told us that Bitcoin and Ether are not

securities, you told us that DOW tokens are securities, what

about the vast middle in here? What about XRP? In what ways

is that like Bitcoin and Ether? In what ways to you think that

is like DOW tokens? And that information, what it is telling

the marketplace, is an admission about what the key factors are

that the SEC would apply to say something is or is not a

digital security as opposed to a cryptocurrency. And we think

that to the extent they have articulated some factors

elaborating on the Howey test, we think we fall within what

they were telling people about when a particular currency is or

is not a digital asset. That's been an ongoing dialogue since

the speech in June of 2018 that was given by Mr. Hinman.

THE COURT: Thank you.

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I want to give an opportunity to the individual

defendants to speak but I want to reiterate my admonition to

the public again that the recording of today's conference is

prohibited and rebroadcasting it is prohibited and that anyone

who is found to have engaged in this conduct is subject to

criminal sanctions. I know that this is being broadcast now on

the Internet and so we already have people looking into who is

engaging in that conduct. Again, we will make this proceeding

as open as possible, to make it available for more people to

listen in than the 500 that are already listening if we are

able to do that. Obviously, if we were in the court house we

would be limited by the physical limitations of the court

house. The fact that we are engaging in this proceeding

remotely is not a basis to engage in criminal violations and so

we have our law enforcement officers looking into this issue

now. And so, whoever is engaging in this conduct is on notice

that they are engaging in a violation of my specific order to

stop doing it, as well as the rules of our court and that

whoever is engaged in this conduct may be subject to criminal

sanctions.

So, why don't I turn -- I think we have spoken a lot 

about some of the issues that relate to the individual 

defendants but if Mr. Solomon or Mr. Gertzman wish to be heard, 

I will certainly give them an opportunity to speak. 

MR. SOLOMON: Thank you, your Honor. Matt Solomon for

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Mr. Garlinghouse and I am cutting as we are talking so I am

really going to trying not to repeat Mr. Kellogg's points which

were ably made with respect to Howey and, independently, with

respect to the individuals but let me amplify on the

individuals to make crystal clear our position.

As your Honor knows, in order to establish aiding and 

abetting, and that's the second charge here brought against the 

individuals, the SEC has to prove that Mr. Garlinghouse and 

Mr. Larsen acted with scienter and that means that, to take my 

client, Mr. Garlinghouse knew or recklessly disregarded that he 

was associating himself with something improper, and that 

something improper in the SEC's telling is Ripple's offers and 

sales of XRP without a registration statement. And that, your 

Honor makes this a very different case from the typical SEC 

case. As you asked Mr. Bliss about up front, because aiding 

and abetting charges are involving lying, insider trading, 

accounting fraud, here the SEC case is really one of regulatory 

interpretation and I think that's really what separates it from 

so many others. And the SEC isn't just saying that 

Mr. Garlinghouse and Mr. Larsen got it wrong, they're saying 

they got it beyond grossly negligent wrong, they were reckless 

in not knowing that XRP was a security or they intentionally 

avoided knowing that XRP was a security. So, why is that 

relevant for today's purposes? We have already talked about 

the kind of documents we are seeking, your Honor, documents 

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perhaps showing that the SEC itself was struggling with the 

question of whether XRP was a security and documents showing 

the SEC's communications with other market participants who 

were trying to get insight from the regulator as to whether XRP 

was a security. And where the SEC is advancing as its primary 

theory that Mr. Garlinghouse and Mr. Larsen acted recklessly or 

consciously avoided knowledge that they were acting improperly 

because the SEC sales formed investment contracts and 

substantially assisted that violation, again, what they have to 

prove is in the face of an unjustifiably high risk of harm that 

is either known or so obvious it should be known that they are 

liable as aiders and abettors. So, we are not talking about 

negligence, we are not talking about gross negligence, this is 

an order of magnitude above that, that's the scienter 

component. And the key to the scienter component in terms of 

the discovery that's being sought in this case, your Honor, is 

that recklessness has an objective component and that's the 

Supreme Court that says that and the Safebuilt case that we 

cited, and the Second Circuit affirms that in the Sleighton

case, 604 F.3d at 776, note 9, and it is that objective 

component that is most relevant here. The SEC's understanding 

of and discussions around the nature of XRP throughout the 

entire time, as well as Bitcoin and Ether which apparently are 

not securities according to the SEC is relevant to the question 

of whether the allegedly improper aspects of Ripple sales were 

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so obvious that they should have been known by Mr. Garlinghouse 

and Mr. Larsen. And just to be very concrete about it, your 

Honor, let's say we learn through this discovery that it wasn't 

so obvious to Jay Clayton, or it wasn't so obvious to Bill 

Hinman who ran CorpFin that XRP was or is a security, if we get 

that and we are entitled to look for it before a fact finder, 

that's game over for the SEC under the aiding and abetting 

claim. And, frankly, their entire case. That's just one 

illustration of why this discovery is so critical. 

Conscious avoidance is another theory that the SEC has 

put out in addition to recklessness. That requires that the 

SEC prove the executives deliberately shielded themselves from 

sheer evidence of critical facts that are strongly suggested by 

the circumstances. This is the Global Tech Appliance case. 

And again, we are going to show in our motion to dismiss which 

will be filed next week, that the SEC has not adequately 

alleged knowledge and recklessness and we believe that Judge 

Torres will ultimately dismiss the aiding and abetting claims 

but until she does, the individual defendants are entitled to 

seek discovery to defend themselves and the SEC has to look. 

They have to search for and produce the requested documents so 

that we can at least have a full and fair opportunity to build 

a defense for the SEC's recklessness and conscious avoidance 

arguments. 

We also have reason to believe, your Honor -- and I am

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not going to belabor it, Mr. Kellogg gave you some examples of

discovery that we have gotten, this is not some fishing

expedition, we have concrete examples of interactions between

sophisticated market players as late as May '19 where the SEC

has engaged in dialogue with those market players and the

actions they took after that dialogue establishes that they

believed, walking away from the meetings with the SEC, that XRP

was not a security. That's exculpatory. And we know the SEC

has provided private guidance to other market participants

leading them to understand that XRP was not a security and that

guidance is directly relevant to how the market viewed XRP.

That's the argument under Howey but it is also relevant to

whether it was reckless or intentional to our client to make a

determination themselves where the SEC itself may not have made

a determination or in fact may have believed, up until very

recently, that XRP was not a security, perhaps was more like

Ether, more like Bitcoin. We are entitled to explore that and

we cited, your Honor, the Kovzan case. It is a short case,

your has probably already read it. It is really on all fours

with what is happening here and if you read the underlying

papers for the Kovzan case, the SEC filings, the same arguments

are being made by the SEC there. This was the case, your

Honor, where the CFO of a public company was charged with

several scienter-based claims based on his involvement in a

perks scheme. He was alleged to have omitted information on

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proxy statements of perks -- payments -- going to the CEO. So

it was an omissions case and the Court there stated that the

recklessness component of scienter had an objective component

and that the individual defendant was therefore "entitled to

seek evidence from the SEC related to the industry standard in

relation to what the SEC itself considered to be unlawful

conduct in this area of executive compensation." And the Court

was very clear that the SEC must produce relevant documents

including those reflecting communications between the SEC and

third-parties because they could reflect -- and again I'm

quoting from a case -- confusion regarding the regulations.

And again, the SEC made the same arguments in Kovzan that it

attempts to make here. It said there, look, our internal

communications are irrelevant to scienter because the defendant

didn't know about them, but the Court said wait a minute, there

is an objective standard of recklessness so Kovzan is entitled

to this evidence whether or not -- and this is a quote -- "such

evidence was previously known to him or the public."

Now, Mr. Bliss may say, look, Kovzan involved an SEC

regulation. Here we are talking about the Howey test. But,

the Court didn't make that qualification and frankly, your

Honor, it is irrelevant in the context of a scienter-based

aiding and abetting claim against the individuals. In both

cases industry practice and SEC guidance are relevant to the

objective components of the individual defendants'

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recklessness. In fact, here I think we have a stronger claim

than Mr. Kovzan did because what the SEC is effectively saying

is that Mr. Mr. Garlinghouse and Mr. Larsen didn't correctly

predict that the law would be, in the future, such that XRP

would be deemed, in 2020, to be a security by the SEC.

And we would say the Sentinel case also, your Honor,

as another case where the Court allowed exactly the kind of

discovery that we are seeking here. So our entitlement, the

individual defendants' entitlement through this discovery isn't

just Howey, what Mr. Kellogg argued, that's an independent

basis when you ought to get discovery, but there is another

basis which is the decision to charge this with reckless

conduct and that's their theory of the case. They chose to

charge individuals, they chose to do it with scienter-based

conduct despite an obvious lack of clarity. They're telling

Judge Torres it is a simple case involving a rogue application

of Howey but, your Honor, I don't think anybody perhaps beyond

the SEC litigation team believes this is a separate case. And,

again, we have seen evidence already of this in the discovery

that's been produced so far.

Again, the SEC has asked us to produce various

documents and they've attached to their letter two examples of

communications from Ripple or its investors that it cites as

evidence that XRP's status as a security should have been

obvious to the defendants. Well, what we are seeking, your

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Honor, is the inverse of that and we are entitled to it because

we believe that the SEC's statements about XRP, Bitcoin, and

Ether, especially those made to market participants, is

evidence that shows it was much more questionable whether XRP

would ever be classified as a security than the SEC tells this

Court today.

Now, just a couple of final points and I think

Mr. Gertzman will want to make a couple of remarks on behalf of

Mr. Larsen. I want to address the pandora's box argument,

Mr. Bliss alludes to it but I just want to take it on now

because really it goes to how unusual these circumstances are.

This is not the garden variety Section 5 case. We are not

dealing with stocks or bonds or orange groves or whiskey drams

or the kind of cases that Courts and markets have considered

and evaluated for 75 years. And XRP -- Ripple -- is not

like -- again, I'm not talking merits here I am just giving

context what the SEC has brought -- it is not like micro cap

initial coin offerings or ICOs that look just like IPOs.

That's Kik and Telegram. And they brought enforcement actions

against those entities. Fine. But, Mr. Garlinghouse was out

there encouraging the SEC to pursue fraud actions in this space

because that kind of conduct threatens to taint the entire

industry and if this case proceeds there will be evidence of

that. And Mr. Garlinghouse was talking to regulators, talking

to the public, and talking, indeed, to the SEC itself. He

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never believed he was doing anything wrong and he wasn't.

So, we are not making a claim of selective enforcement 

here. You may hear that as well. The SEC chose not to sue 

someone else for committing fraud so they can't sue us. All we 

are saying is that the SEC is likely to have communications 

that reflect on whether believing that XRP was not a 

security -- as my client did, as Mr. Larsen did -- was 

reasonable or at least not reckless. And the SEC knows these 

communications are relevant, it is seeking the same kind of 

communications from us, it is offering up additional discovery, 

your Honor, because I believe it realizes that we are entitled 

to these documents but I have a lot of respect for Mr. Bliss 

and I trust him but, frankly, I don't want him picking or 

anybody in the SEC, picking our custodians. I think that the 

custodians we offered up is a reasonable number, the right 

people, particularly the commissioners themselves, so we would 

just ask again that that discovery be permitted and that the 

SEC not be permitted to pick and choose what it provides to us. 

We are not permitted to pick and choose what we provide to 

them. 

On Kik and Telegram finally, your Honor, I just want

to be very clear about this. Again, put the merits aside, this

isn't about the merits but they've offered up discovery on Kik

and Telegram but not an Bitcoin and Ether. I want to be

perfectly clear about this: This case is nothing like those

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cases as you pointed out very early on, your Honor. This is a

huge step beyond what the SEC took on there. Kik and Telegram

involved initial coin offerings, ICOs. This doesn't. The SEC

sought preliminary injunctive relief in those cases to stop

what it believed was an ongoing unregistered offering scheme.

It didn't do it here. Grams were new, according to Judge

Castel. XRP isn't new at all. There was no Telegram

blockchain at the time of the offering. Not true here. And

the companies in Kik and Telegram -- and this is critical --

were in privity of contract with the initial purchasers.

Ripple was not. Digital assets in Kik and Telegram had no

utility. XRP's technology has been used already to make faster

cheaper and more efficient payments. But here is the kicker,

and Judge, this is back to where you started with your

questions: The SEC didn't charge individuals in those cases,

nor in the case that they cited, this Marine Bank case. No

individuals. The issue in Kik was whether defendants could

seek discovery into internal SEC documents in support of its

defense that Howey was unconstitutionally vague and Judge

Castel said -- and the Court there said that is an issue of

law, not of fact. Here, as Mr. Kellogg said with respect to

Howey, these documents speak directly to the fact-intensive

inquiry, specifically the character that XRP was given in

commerce. You heard Mr. Bliss concede that there is an

objective inquiry to be made here under Howey and there is

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plainly an objective inquiry to be made if you are charging

individuals with recklessness. And here, your Honor also, the

defendants have raised a fair notice defense, not vague to

avoid this defense. 

So, I just want to be very clear that the ruling in 

Kik on this issue has no bearing on the relevance of the 

requested discovery to defend against the SEC's allegations 

about the individual defendants' scienter. And, again, these 

are just some of the differences with Kik and Telegram. There 

are many others. 

So just to conclude, your Honor, if the expert agency

couldn't resolve the question apparently for years on what XRP

was, was it a security? Is it more like Bitcoin and Ether? Or

is it more like one of these ICOs that they waited for years to

sort of figure that out, how could it possibly be reckless or

intentional for Mr. Garlinghouse or Mr. Larsen to determine XRP

was not a security? It can't be. And that's why this

discovery, independently of everything Mr. Kellogg said about

the Howey test -- those arguments apply to individuals too --

but on this independent basis we need this discovery to defend

ourselves. If the SEC is prepared to say they're not pursuing

reckless they're not pursuing conscious avoidance maybe we

would be in a different place on this argument but I don't

think they're prepared to say that.

So, for all of those reasons, your Honor, we believe 

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we are entitled to this discovery and we hope the Court orders 

the discovery forthwith so we can make effective use of it to 

defend ourselves in this litigation. 

Thank you.

THE COURT: Thank you.

Mr. Gertzman, there has been a lot of oxygen spent on

these arguments but if you feel like you have something

particular that is unique as to Mr. Larsen, there is something

that hasn't been raised that is important I will give you the

opportunity to be heard.

MR. GERTZMAN: Thank you, your Honor, and I appreciate

that and I will be very brief and not repeat or try not to

repeat anything that Mr. Kellogg or Mr. Solomon said, although

I agree and support their points completely.

Just a couple of brief things. First, Mr. Bliss said

in response to one of your questions early on that there is

nothing about the inclusion of the individual defendants in

this case that makes documents about Bitcoin and Ether

irrelevant in this case. I don't agree with that, I think it

is incorrect, I think it is incorrect for the reason that your

Honor already pointed out which is it essentially asks this

Court, on an unsupported, naked assertion by the SEC on a

motion to compel, to throw out an entire issue of whether

Bitcoin and Ether are similar and how similar they are to XRP.

But the point I want to make is the point about recklessness in

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this context because the issue of how different or similar XRP

is to Bitcoin and Ether also goes to the issue of recklessness

in the minds of the individual defendants. And no one is

saying, your Honor, that these three assets are exactly the

same. How similar they are and how different they is a

critical factor when it comes to the way the defendants are

thinking about this and that's why this discovery is relevant

on the issue of recklessness.

I also want to just drill down a little bit on the

definition of recklessness because I think it helps explain and

show why the discovery we seek here is so critical and

relevant. This is a term -- recklessness is a term that has

been defined, well-defined by the Courts at this point and the

cases that we cite in our papers including the definition but

the point is that there is an element of recklessness that is

objective. There is an element that requires the SEC to prove

here that it was so obvious, it would have been so obvious to

Mr. Larsen and Mr. Garlinghouse that XRP was a security that

they were reckless; that they departed so far from ordinary

standards of care on that question that they were reckless.

And the way to think about how to prove or disprove an issue of

recklessness is to look at what's being said and thought about

and done in the marketplace on that issue. And to use a term

Mr. Kellogg used, he described the SEC as a focal point. I

think that's a fair characterization, that the SEC has a focal

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point on the issue of whether XRP was a security because it sat

at the center of lots of communications and discussions and

internal review and assessment of that issue. And so, it is

the logical place to turn to for that evidence because if, in

the end, the evidence from the SEC shows that they were unsure

about whether XRP was a security or that they concluded at

times that it wasn't, then how in the world can Mr. Larsen and

Mr. Garlinghouse be accused of being reckless on that issue?

I also want to make a quick point, your Honor, about

specific allegations in the amended complaint, specifically

paragraphs 55 and 59 of the amended complaint in which the SEC

alleges that Mr. Larsen received legal advice in 2012 that he

should go to the SEC to seek clarity as to whether XRP was a

security. I am mindful of your Honor's reminder that one of

the documents at issue here is under seal so I won't go into

the substance of the document but there will be a lot to be

said about that document as we go forward because I think the

SEC's allegations in the complaint about that advice really

distort and omit critical compliance and conclusions of that

advice.

The point I want to make on this motion to compel,

your Honor, is that it is really not appropriate and fair for

the SEC in the complaint to take Mr. Larsen to task for not

going to the SEC to ask about whether XRP was a security and

then to tell us, as they are in this motion, sorry, we are not

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going to tell you what we would have told Mr. Larsen about

whether XRP was a security. We are not going to tell you what

we were thinking and doing and talking about with others on

that issue. We are just going to criticize you for not going

to us in the first place. That's not appropriate, your Honor.

They have put in issue the very question of what they were

saying and doing and thinking and talking about when it came to

whether XRP was a security.

The last point I want to make, your Honor, is that it

is really more of a general point that I think it's pretty

obvious that the issues in this case are really important;

they're obviously important to the parties, they are important

to my client and Mr. Garlinghouse who have been accused of

reckless and knowing conduct which is obviously a very serious

allegation. I think it is fair to say that important segments

of the fintech and cryptocurrency community are watching this

case closely and, ultimately, it is going to be up to the

Court. And by Court I mean this Court, your Honor, and Judge

Torres, and potentially the Court of Appeals and maybe even the

United States Supreme Court if it comes to that, it is going to

be up to the Court to decide whether XRP is or was a security

or not. And I just think, given the importance of those issues

and how new an issue this is, how critical it is in the context

of trying to apply this 1933 definition of security and the

1946 Supreme Court Howey definition to the current situation it

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is important that this evidence within the SEC about its

communications with others and its discussions about those

communications, that that not be kept from the Court, it not be

kept out from the record. The Court can always decide whether

that evidence should be admissible at trial and what weight it

should be given. But, for that evidence to be ruled out of

discovery in the first place I think is really a distortion in

the face of Rule 26 so we would ask the Court to grant the

motion to compel.

I am happy to answer any questions you may have. 

THE COURT: Great. Thank you.

Mr. Bliss, if you want to take five minutes to respond

to anything in particular I am happy to give that to you.

MR. BLISS: Yes. Thank you, your Honor. I appreciate

that, because in listening to various different counsel's

statements it is really remarkable to hear that what really

underlies a lot of their request is this claim that action or

inaction by the SEC has somehow led the markets to believe

something about XRP as far as its status as a security.

Since 1946 there has never been a case saying that

some action or inaction by the SEC influences how the market

views an instrument. They don't cite one. It doesn't exist.

The actions of the promoter are what needs to be the focus

here. And so, to try to put the SEC on trial is totally

inappropriate based on decades of law. And it is clear, in

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listening to the various defense counsel assert that they think

that the discovery would somehow show that the SEC was flailing

or was confused is, again, remarkable. The SEC acts pursuant

to its statutory authority. It investigates. It issues

enforcement actions. It issues no action letters. That's how

it operates. And so, the idea that because it took X number of

years from the time XRP existed to get an enforcement action

somehow opens the kimono to total and complete discovery inside

the SEC is really a remarkable position for the Defense to be

advocating and it is not supported. And specifically, on the

point that was suggested by Mr. Solomon that the SEC

individuals are somehow giving comfort to market participants

in SEC meetings that XRP is not a security, again, that is not

how the SEC operates. In this case the SEC took time,

completed an investigation, filed an enforcement action. And

so, allowing discovery into the SEC's internal and deliberative

communications would have a chilling effect on every federal

agency. If agency employees' communications were subject to

discovery, every time an agency filed an enforcement action in

which the defendant challenged the clarity of the law or the

defendant's understanding of it or the timing of the action, it

would derail federal agency litigation from being focused on

the conduct of the defendants to being about the conduct of the

government and its officials. It would also open the door to

discovery far beyond the issues in the filed regulatory

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actions. Here it would involve the complicating factor of

opening the door to discovery from Ripple's own counsel who

were the chair of the SEC and the head of the Division of

Enforcement for several years of the relevant period in this

case when defense counsel now apparently claims that the SEC

gave the market some impression of XRP during the time that it

took to file the action. And the improper breadth of the

discovery, it was further demonstrated today in terms of the

discussion of Mr. Clayton and a subpoena that was sent last

week to the former SEC's Chair's new place of employment for

documents and communications from while he was the Chair about

XRP and other digital assets.

So, there is just no basis to allow defendants to put 

the SEC and its commissioners and its staff on trial for 

operating in the way that it does. 

And, specifically on the point of the Kovzan case, 

Mr. Solomon correctly identified that that case and any of the 

few cases they cited that grant some type of SEC internal 

discovery are about situations in which the SEC has promulgated 

rules and interpretation of those rules. Every one of the 

cases that they cite that's the case. And this is not the case 

here. The Howey test is for federal court interpretation and 

has been out there since 1946, it is not about an SEC rule that 

has been implemented. 

And, I also think it is important to go back to the

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speech by Mr. Hinman that has been referenced several times

now. This was not an official position of the SEC commissioner

itself but it is important that in 2018 Mr. Hinman gave a

speech not about XRP but about digital assets generally. He

said -- to quote that speech which is publicly available on the

SEC's website -- "The digital asset itself is simply code but

the way it is sold as part of an investment to non-users by

promoters to develop the enterprise can be, and in that

context, most often is a security because it evidences an

investment contract." He contrasted that to Bitcoin: "When I

look at Bitcoin today, I do not see a central third-party whose

efforts are a key to determining the factor in the enterprise."

But here Ripple is doing exactly what Mr. Hinman said makes a

digital asset a security: Acting as a central party promoting

XRP as an investment. And notably, as of June 2018 when

Mr. Hinman made that speech, there was no use for XRP other

than investment. As we alleged in the complaint, paragraphs

362 to 364, it wasn't until October 2018 that Ripple

commercially launched any use for XRP. And, even since then,

that use has been minimal accounting for no more than 1.6

percent of XRP's trading volume during any given quarter. So,

at the time of Mr. Hinman's speech, Ripple had been conducting

an ongoing offering for five years during which time XRP was

offered and sold as an investment with no current use at all.

And, to the extent the defendants now wish to feign confusion

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about the time at which Mr. Hinman made those remarks in 2018,

Ripple was under investigation by the SEC at the time of that

speech. That speech could not have provided any comfort or

confusion to the defendants about the status of XRP at that

time.

With that, I am happy to answer any questions.

THE COURT: Just a quick clarifying question. You

distinguish the speech, Mr. Hinman's speech suggesting it was

not a pronouncement but rather just a speech that referenced

Bitcoin and so is it -- does the SEC take a position that as of

a certain date its position was official as to Bitcoin and

Ether?

MR. BLISS: So I want to make clear that this is my

understanding of the current situation and I don't want to be

overly technical but the SEC, itself, my understanding, it has

not taken an official position. There is no action that it

took to say Bitcoin is not a security, Ether is not a security.

Now, there was a speech by a high-ranking person who said that

to him that's what it looked like but there has been no action

letter, no enforcement action, none of the official ways in

which the SEC takes a position on that matter that has

occurred. What I understand defendants to be referencing is

the speech by Mr. Hinman which is not an official statement of

the Securities and Exchange Commission itself.

THE COURT: Okay. Thank you. I appreciate that

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clarity.

Okay. Thank you everybody for your arguments. I

appreciate them. As I have come to expect from this group of

lawyers, they were excellent and the papers that you submitted

as well were excellent. And I recognize that this is

high-stakes litigation and that people are quite invested in

the outcome of the issues including the individual defendants

who face serious individual liability.

I have reviewed the letters and have listened 

carefully to the argument. I am going to grant, in large part, 

the defendant's motion. I think that the discovery related to 

Bitcoin and Ether is relevant. I think it is relevant to the 

Court's eventual analysis with respect to the Howey factors, 

but I also think it is relevant as to the objective review of 

defendants' understanding in thinking about the aiding and 

abetting charge or aiding and abetting count. I also think it 

is relevant to the fair notice defense that Ripple is raising. 

So, for all of those reasons, I think discovery into Bitcoin 

and Ether is appropriate and I am going to authorize it. I am 

going to authorize discovery both as to exclusively Bitcoin or 

Ether communications as well as XRP communications between the 

SEC and third-parties, and by that I am including all market 

participants and the other government agencies. I am not 

including SEC-to-SEC internal communications in that ruling. 

And so, the SEC is obligated to review the discovery request. 

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I am just looking at the actual requests themselves. I know we 

have been talking about requests 4, 7, 8, 11, and 14. Search 

all of the relevant repositories for documents and discovery 

related to communications to third-parties. In addition, I am 

ordering that discovery be conducted of all 19 custodians. I 

don't think that the SEC's arguments, as set forth within their 

letters and again today, are a legitimate basis given the 

relevancy standard to preclude discovery here. 19 custodians 

for an incredibly high-stakes, high-value litigation is not 

unreasonable, and given the three different categories of 

grounds not to produce documents, I don't think that that is a 

legitimate basis so I am going to direct that the SEC search 

all 19 custodians for relevant and responsive documents. 

I am going to deny in part the request for discovery

that is internal, and specifically internal, for instance

e-mail communications between what I will call the SEC staff to

SEC staff. I think that that communication both is less

relevant as it goes to how the outside world -- how the market

is considering XRP and how the individual defendants, how it

affects their reasonable belief, and I also think that there

are likely to be extensive privilege issues there and I think

it has the potential to seriously chill government

deliberations and so I am not going to require communications

to be produced that are internal e-mail communications within

the agency. If you want the parties to meet and confer -- and

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this will betray some of my ignorance as to how the SEC may

operate -- to the extent there are relevant minutes or more

official internal memos on these areas of discovery that I am

authorizing, both the Bitcoin and Ether discovery as well as

the XRP discovery, I want the parties to meet and confer on

whether those should be produced. So, my limitation now is

just as to e-mail communications, the sort of everyday, more

informal communications that I think would not be appropriate

for discovery here. But, to the extent internally there are

memos being sent up to higher-ranking officials expressing the

agency's interpretation or views on these matters, those types

of documents may be discoverable but I will direct that the

parties meet and confer with respect to that. Obviously to the

extent in producing these documents there are documents that

are privileged, the SEC certainly has the right and obligation

to identify privileged documents and produce the privilege log

and the parties are ordered to meet and confer on that

privilege assertion and if you can't reach a resolution you can

obviously bring that dispute to me.

All right. That is my ruling on the motion. Anything

further from the SEC?

MR. BLISS: No, your Honor. Thank you.

THE COURT: Anything further from the defendants?

MR. KELLOGG: Nothing from Ripple left, your Honor.

Thank you.

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MR. SOLOMON: Nothing from Mr. Garlinghouse. Thank

you.

MR. GERTZMAN: Nothing from Mr. Larsen right now.

Thank you, your Honor.

THE COURT: All right everybody. Stay safe. Thank

you very much. 

We are adjourned. 

o0o 

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