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SEC v. Ripple: Judge Releases Ruling on Daubert Motions.
Judge Analisa Torres granted and denied motions from both parties in part.
Judge Analisa Torres has released her ruling on motions filed by both parties in the United States Securities and Exchange Commission case against Ripple to rule out expert testimony.
Attorney James K. Filan, who has consistently provided updates on the case, disclosed this in a tweet today, sharing a copy of Judge Torres’ ruling. Notably, she granted and denied motions from both parties in part. Former lawyer and founder of Evernode, a proposed Layer 2 network on the XRP Ledger, asserted that it highlighted the judge’s impartiality.
Neither side gets everything it asked for because neither side had impeccable arguments for everything it wanted.
What leaps out is how sharp, rigorous, and utterly impartial Judge Torres is. https://t.co/KPdgDdZdPY
— Scott Chamberlain (@scotty2ten) March 7, 2023
However, XRP holders look to be the biggest winners in the court’s latest ruling. As highlighted by Attorney John E. Deaton, who represents over 75,000 XRP holders as a friend of the court in the case, the federal judge granting in part Ripple’s motion to strike out testimony from the SEC’s Expert No. 1 struck out the expert’s opinion as to the perceptions of XRP purchasers.
“@Ripple’s Motion to Exclude Expert No. 1 from testifying is GRANTED as to his first opinion about the perceptions of a reasonable XRP purchaser, and DENIED as to the remainder of his testimony.”
– Judge Torres
Now try and tell me #XRPHolders don’t make a difference!
— John E Deaton (@JohnEDeaton1) March 6, 2023
In addition, Deaton points out that the judge also struck out an opinion from the SEC’s Expert No. 4 about the risks to the XRP Ledger if Ripple “disappeared.”
It is worth noting that these are important because they speak to whether XRP holders purchased the token with the expectation of profit solely from the efforts of Ripple. Consequently, it speaks directly to the third and fourth elements of the Howey Test, marking a potential blow to the SEC’s claims that all XRP sales represent unregistered security sales.
The CryptoLaw founder tapped the participation of XRP holders, affidavits submitted by independent developers, and amicus briefs from projects like SpendTheBits as the reason for this marginal victory.
Attorney Jeremy Hogan, a pro-XRP attorney and partner at Hogan & Hogan responding to the latest developments, also implied that the recent ruling now makes it more difficult for the SEC to prove that XRP holders had reasonable expectations of profits from Ripple’s efforts.
“So, now, how the heck can the SEC prove ‘reasonable’ reliance? Who will testify?” Hogan asked in a Twitter thread responding to the case update.
The SEC has to prove that you had a REASONABLE expectation of profits from Ripple's efforts.
And the Judge just struck the SEC's ONLY Expert Witness on that subject.
So, now, how the heck can the SEC prove "reasonable" reliance? Who will testify?
Just thinking out loud. 🙂 https://t.co/qnqvxEAMI2 pic.twitter.com/ujjfRt657q
— Jeremy Hogan (@attorneyjeremy1) March 7, 2023
Hogan pointed out that while the judge maintained that opinions from the SEC’s Expert No. 3 on Ripple’s incentives and actions to influence XRP’s price could be important in deciding whether XRP holders had expectations of profits, he did not expect them to have significant implications for the case. The Hogan partner buttressing this described it as “weak sauce.”
Eleanor Terrett, a FOX Business journalist who has followed the case closely, pointed out that the SEC previously tried to remove Deaton from the case, partly for revealing the identity of Expert No. 1. However, as highlighted by Terrett, Judge Torres, instead of barring Deaton from participating, has ruled that this expert cannot speak on the intentions of XRP holders.
It’s worth noting that the SEC lawyers tried to get Judge Torres to ban @JohnEDeaton1 from participating in the case partly because he disclosed the name of their expert witness.
Not only did she not ban him, she agreed with him that Doody shouldn’t testify about #XRP holders.
— Eleanor Terrett (@EleanorTerrett) March 7, 2023
What Next?
It is likely that, following her ruling on Daubert motions, Judge Torres will release her verdict on Omnibus motions next. This will be of significant interest to XRP community members, as it will decide if the public finally gets access to the hotly contested Hinman documents.
The Hinman documents refer to emails and other materials related to the draft of the controversial Bill Hinman speech in 2018. An SEC director at the time, Hinman asserted that Bitcoin and Ethereum were not securities. The XRP community has called the motivation for this speech into question. At the same time, the SEC going after XRP after giving Ethereum what community members have described as a “free pass” has also raised eyebrows.
Recall that the SEC, in its Omnibus motions, had called for the documents to remain sealed, a stance that Ripple opposed in its reply.