Lawyer Breaks Down Secret XRP Memo and Private SEC Meeting With Ripple

A little-discussed memo from the Securities and Exchange Commission (SEC) from five years ago may suggest that the agency faced internal struggles in concluding whether XRP was a security, according to crypto lawyer John Deaton.

This may indicate that Ripple – the company behind XRP – was not legally reckless in issuing the token years prior, as the SEC has often alleged.

The SEC’s Memo

According to Deaton, the “Howey memo” was written by SEC enforcement lawyers, and received by SEC chair Jay Clayton and Commissioner William Hinman on June 13, 2018. This was just one day before Hinman delivered a speech suggesting that Ethereum (ETH) may not be a security while neglecting to mention XRP.

Three months later, Both Clayton and Hinman held a meeting with Ripple CEO Brad Garlinghouse and CTO David Schwartz asked why XRP had been left out of the speech. At the time, both ETH and XRP competed for the distinction of #2 largest crypto by market cap, but ETH pulled ahead after the speech was published.

“We have the actual meeting notes from Hinman’s Special Counsel who was assigned to him by the SEC and attended the meeting,” said Deaton. “The [notes] written by this SEC attorney tell us A LOT.”

Deaton said the meeting was related to XRP’s regulatory status, during which Garlinghouse “exhibited frustration over the lack of regulatory clarity for XRP.” The CEO said that his company was in “purgatory” due to the SEC’s vagueness on the matter.

What the SEC Thought of XRP

The lawyer said that Clayton was fairly dismissive in response, encouraging Ripple to “keep talking to the staff” about the issue. Based on this, Deaton inferred that the Howey memo received by the SEC months prior must not have concluded that XRP was a security, or else it would have been mentioned by Clayton at the meeting.

“The memo was found to be privileged and not disclosed so I haven’t read exactly what it says,” he clarified in a tweet on Sunday. However, the fact that there was no accompanying enforcement action shortly after the memo was published further demonstrates that the SEC had likely reached no conclusion at the time.

“If enforcement lawyers at the SEC struggled to conclude XRP was a security in 2018, how can it be that Brad Garlinghouse and Chris Larsen were reckless in not knowing XRP was being sold as a security in 2013-2015[?]” asked Deaton.

Judge Analisa Torres ruled last month that institutional sales of XRP were indeed securities transactions, but that secondary market sales were not. XRP itself, she added, also did not violate securities law. The SEC is now seeking to appeal the ruling, arguing that there’s room for disagreement between courts on the matter.

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