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the regulator stumbles on its argument against the production of internal documents


The battle continues between Ripple Labs and the US Securities and Exchange Commission At the most recent court hearing, the two clashed over whether the SEC should produce internal documents on its business policies. According to one attorney, the SEC will most likely lose this battle after the judge raised questions that led the SEC attorney to contradict himself.

Ripple is struggling to get its hands on the SEC's internal policies as through them it could demonstrate that the regulator had not established any clarity for market operators on the status of digital currencies. This is based on their failure to defend fair service. The SEC, for its part, has been arguing that the documents are protected by the Deliberative Process Privilege (DPP).

Apparently at an impasse over documents, the two factions held a court hearing on the matter in the Southern District of New York yesterday, August 31.

Judge Sarah Netburn was armed with forceful questions for both parties. One of them was: "Is the standard to aid and incite a violation of the law an objective or subjective standard?"

Matt Solomon, Ripple's attorney, was quick to refer to an earlier case in which the United States Supreme Court declared that “recklessness in the sphere of civil liability is conduct that violates an objective standard; action that involves an unjustifiably high risk of harm that is known or so obvious that it should be known.

According to attorney Jeremy Hogan, the SEC's legal team struggled to answer the same question. Finally, the SEC ended up admitting that this is an objective standard, not a subjective one.

Importance of this

The fact that the SEC declares this standard to be objective is critical to the legal battle at hand. This is because if it were objective, that is, subject to what the individual defendants understood at the time, the SEC's internal policies would be off-limits to them. However, being an objective standard requires the SEC to show what its internal deliberations on the matter were.

Hogan commented:

If it is an objective test and the SEC is confused, how could the defendants have acted knowing they were wrong?

Judge Netburn has been hinting that she believes the SEC's internal documents are relevant to the case and should be turned over. After all, it has ruled in the past that the SEC must deliver these documents, although the regulator has appealed.

The judge has then demanded to see the disputed documents herself and will rule on each document separately.

On an encouraging note to XRP holders, Justice Netburn stated:

If the underlying law was unclear at the time, even to the SEC, then the alleged violations could not have been "so obvious that the defendant must have known."

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