[00:00:00] Speaker 03:
May it please the court, Jason Bell for lead plaintiff appellant.

[00:00:03] Speaker 03:
I'd like to reserve four minutes for rebuttal.

[00:00:04] Speaker 04:
All right.

[00:00:05] Speaker 04:
Watch your time, counsel.

[00:00:08] Speaker 03:
The district court's judgment should be reversed because a reasonable jury could find that Ripple made a separate offering of XRP investment contracts in 2017 that triggered their opposed clock for that offering.

[00:00:21] Speaker 03:
Under the governing Murphy test for a separate offering, a reasonable jury could easily find that the 2017 offering was different from what came before.

[00:00:30] Speaker 03:
In 2017, Ripple for the first time targeted unsophisticated investors to develop a liquid market to support a new cross-border payments platform.

[00:00:39] Speaker 03:
But XRP had a major supply side problem.

[00:00:42] Speaker 03:
Ripple was free to flood the market with the 80 billion tokens in its treasury.

[00:00:47] Speaker 03:
That massive overhang destroyed liquidity, volume, and price.

[00:00:51] Speaker 03:
XRP traded for only about half a penny.

[00:00:54] Speaker 03:
Then in 2017, Ripple suddenly transformed the market

[00:00:58] Speaker 03:
by changing the number of XRP that could be sold and told investors when it did so that, quote, things have changed.

[00:01:05] Speaker 03:
That's Ripple's market report at 4ER771.

[00:01:08] Speaker 03:
To solve the overhang, Ripple locked up its treasury into tranches of 1 billion XRP.

[00:01:15] Speaker 03:
Each month, one tranche would become available for sale on a regular supply schedule.

[00:01:19] Speaker 04:
Council, we know the facts.

[00:01:21] Speaker 04:
So I wanted to ask you if we

[00:01:25] Speaker 04:
determined that there was a public offer as of 2013, the statute of repose bars the claim.

[00:01:32] Speaker 04:
Is that correct?

[00:01:33] Speaker 03:
No, that's not correct, Your Honor.

[00:01:34] Speaker 03:
Why not?

[00:01:35] Speaker 03:
Because the text, context, and purpose of the statute all indicate that a separate offering starts the repose clock.

[00:01:42] Speaker 03:
And I'd like to take each of those features of it.

[00:01:45] Speaker 04:
OK.

[00:01:45] Speaker 04:
Let me then ask you this.

[00:01:46] Speaker 04:
If we determine that the offering in 2017 was not a separate offering, does the statute of repose bar the claim?

[00:01:55] Speaker 03:
No, Your Honor, because an offer of a different security would start their post-clock too, and a reasonable jury could find that there was an offering

[00:02:02] Speaker 03:
of a different security here.

[00:02:04] Speaker 02:
And just to be clear on that, so if person A bought a unit of XRP in 2015 and person B bought a unit of XRP in 2017 after what you're calling the different offering, and then they meet up in 2018 and compare their holdings, is there any difference in what they have?

[00:02:29] Speaker 02:
They both have a unit of XRP and isn't it exactly the same?

[00:02:32] Speaker 03:
At that time, it is the same, but I think there are two important distinctions here, Your Honor.

[00:02:38] Speaker 03:
First is that the XRP in 2017 or 2018 was fundamentally altered from the XRP before then, because Ripple had to change the software in order to alter the properties of XRP to facilitate this restricted supply schedule.

[00:02:53] Speaker 03:
You can think of that software like a charter for XRP.

[00:02:56] Speaker 03:
It said what types of transactions could be performed with it.

[00:02:59] Speaker 03:
And before this restricted supply schedule, you could not lock up XRP and then schedule it to open to become available for sale on a later date.

[00:03:08] Speaker 01:
But did that change in software change any of the rights that investor would have to buying this XRP token?

[00:03:16] Speaker 03:
It would, Your Honor.

[00:03:17] Speaker 03:
It would change their right to perform certain transactions with the XRP.

[00:03:21] Speaker 03:
But that's really, I mean, I think... How so?

[00:03:23] Speaker 03:
Well, because before 2017, you couldn't create these types of restricted wallets or restricted accounts that then would open up.

[00:03:31] Speaker 03:
And that completely changed the economic landscape.

[00:03:34] Speaker 03:
of XRP.

[00:03:35] Speaker 03:
Price increased 30,000 percent, volume increased 20,000.

[00:03:38] Speaker 01:
I understood the escrow argument to be that the wallets themselves would be released on a monthly basis and if not used, then taken back up.

[00:03:47] Speaker 01:
How would that affect an individual user, person A, purchasing XRP?

[00:03:53] Speaker 01:
How would that affect their ability to transact or trade the token?

[00:03:57] Speaker 03:
In three ways, Your Honor.

[00:03:58] Speaker 03:
First, those individuals could also create their own escrowed accounts.

[00:04:03] Speaker 03:
So those individuals could also perform different types of transactions with XRP.

[00:04:09] Speaker 03:
The second way is that it had a profound economic effect on the XRP market itself.

[00:04:14] Speaker 03:
It made it into a saleable asset for retail investors.

[00:04:18] Speaker 03:
You can think about it like Amazon authorizing 100 billion treasury shares.

[00:04:24] Speaker 03:
And then one day Amazon says, we're going to take 90% of those shares

[00:04:28] Speaker 03:
off of the market and instead only authorize one billion shares to be made available for sale on a month-to-month basis.

[00:04:35] Speaker 03:
That changes how the economic reality of the security works for investors.

[00:04:41] Speaker 01:
But why, so I take the point that it might change the economic reality, but why would that make it a new offering or a different security?

[00:04:49] Speaker 01:
Because if that were, if you think about it, a company that goes and does things in order to change the share price of stock, you know, maybe it makes good decisions, bad decisions, and it changes the price of the share, would that become a new offering when you sell that security again?

[00:05:10] Speaker 03:
It would depend, your honor.

[00:05:11] Speaker 03:
Murphy is the controlling test, whether it's a different security.

[00:05:15] Speaker 01:
Or an offering, either one.

[00:05:17] Speaker 03:
So I'll take the offering question first, because that's really our principle position here, that it didn't have to be a different security.

[00:05:23] Speaker 03:
I mean, it would change the offering, because it would depend.

[00:05:26] Speaker 03:
It would depend on whether

[00:05:28] Speaker 03:
It changed, there was a different plan of financing, a different purpose, a different class of securities.

[00:05:33] Speaker 03:
Just minor marketing changes aren't going to be enough.

[00:05:35] Speaker 03:
But that's not what happened here.

[00:05:37] Speaker 03:
Ripple told investors that this was a sea change, that it was a paradigm shift.

[00:05:41] Speaker 03:
That's it, ER 772.

[00:05:43] Speaker 03:
A reasonable jury could credit Ripple's own representations to the public that this was something completely different.

[00:05:50] Speaker 03:
and could discredit Ripple's post hoc litigation position that it was all part of one continuous offering.

[00:05:56] Speaker 01:
So Murphy relates to separate offerings and whether one should consolidate in order to provide for an exemption or anything else.

[00:06:04] Speaker 01:
Do you have another case to offer that says you have a security marching along and it has a certain value, and if the company does something to it to change that value, it becomes a new security or a new offering?

[00:06:18] Speaker 01:
What's your best case for that proposition?

[00:06:20] Speaker 03:
So I think the shelf offering context is analogous.

[00:06:23] Speaker 03:
So in a shelf offering, a company authorizes or issues a certain number of shares and puts out a registration statement that says, this is what our offering is going to consist of, and then proceeds to sell onto the market on a continuous or a delayed basis.

[00:06:37] Speaker 03:
Now, under the regulation, section 229.512, you have to file a new amended registration statement if you do one of two things.

[00:06:46] Speaker 03:
if there's a fundamental change in information that investors would use to evaluate the value of the security, or if there's a material change in the plan of distribution.

[00:06:57] Speaker 04:
What case are you relying upon that you say embodies this analysis that you're giving us?

[00:07:05] Speaker 04:
What case can we look to?

[00:07:07] Speaker 03:
For the shelf offering analysis, Your Honor?

[00:07:10] Speaker 03:
Sure.

[00:07:13] Speaker 03:
These aren't cited in our brief because we don't make the shelf offering analogy in our brief, but I could point you to two different cases.

[00:07:18] Speaker 04:
One is called- If it wasn't made in your brief, it's probably not fair game.

[00:07:22] Speaker 03:
Sure.

[00:07:22] Speaker 03:
I mean, I think we're just kind of exploring whether or not this shelf offering, whether if the court were to decide a different test than Murphy was appropriate, the shelf offering context would be where to look.

[00:07:33] Speaker 03:
I mean, we think that there is an antecedent legal question here.

[00:07:35] Speaker 03:
Does a separate offering of the same security start a new repose clock?

[00:07:40] Speaker 03:
The answer to that is yes, and I'd like to explain why in a second.

[00:07:43] Speaker 03:
Murphy is the controlling test for whether an offer is continuous or separate.

[00:07:48] Speaker 03:
Ripple argued that below and is abandoning that position on appeal because its argument under Murphy is so weak.

[00:07:54] Speaker 03:
But if this court were to decide that Murphy is inapposite to this context and that some other tests would apply, we think we would win under any test because Ripple's representations to the public and internal documents all show that this was a sea change

[00:08:10] Speaker 03:
and a paradigm shift.

[00:08:11] Speaker 01:
Did you argue before the district court this argument now that there was a new offering of security in 2017?

[00:08:19] Speaker 03:
Yes, Your Honor.

[00:08:20] Speaker 03:
That's at pages 274 to 276 of the second volume of the record.

[00:08:26] Speaker 03:
And I think there's an important footnote, too, at 268 Note 5, where we argue that the escrow specifically fundamentally altered XRP.

[00:08:36] Speaker 01:
But in the context of it becoming a new offering,

[00:08:40] Speaker 03:
Yes, Your Honor, that it was a separate offering under Murphy.

[00:08:42] Speaker 03:
I mean, I think those are really the same thing, whether it was a separate offering under Murphy or a new offering.

[00:08:48] Speaker 01:
And I do want to have you get to the repose point that you wanted to make, but before we get there, it seems that this argument is somewhat inconsistent with what the arguments were being made for for class certification.

[00:09:02] Speaker 01:
Because if the whole escrow plan was what fundamentally transformed this into a new offering, how does that align with the arguments that

[00:09:12] Speaker 01:
This should be related back to the Greenwald or to other things where there are common questions as to whether XRP was a security earlier in 2017.

[00:09:22] Speaker 01:
Those seem to be a little bit inconsistent because as I understand it, the escrow plan didn't get put into effect until December of 2017.

[00:09:31] Speaker 03:
So I think there are three things in your question, your honor.

[00:09:34] Speaker 03:
So first, on whether the class that was ultimately certified is consistent, it is because it's after the escrow announcement.

[00:09:41] Speaker 03:
The district court ultimately certified a class from July 3rd, 2017, which is within the only people who would have live claims under the statute of limitations based off of

[00:09:54] Speaker 03:
the Greenwald complaint.

[00:09:56] Speaker 01:
I guess I'm a little less concerned about when the court certified the date, but more the nature of your client's arguments, which is this thing with the security, and there are common questions whether this was a security as of early 2017 versus this became a new offering or a new security based on the escrow changes in late 2017.

[00:10:20] Speaker 03:
Right, so to be clear, our position isn't that it was in late 2017.

[00:10:24] Speaker 03:
Our position is that the relevant date is May 16, 2017 when the Estro announcement was made.

[00:10:30] Speaker 03:
I mean, there's no, the parties haven't joined issue on what the one specific date would be because all of the potential dates are within 2017.

[00:10:37] Speaker 03:
We do think that there is one specific date and that is May 16, 2017 when the Estro announcement happened.

[00:10:43] Speaker 03:
The class, and just to respond directly to your question, I don't think,

[00:10:48] Speaker 03:
that there is an inconsistency between saying whether XRP is a, whether there is a common question as to whether it is a security.

[00:10:55] Speaker 03:
I don't think that that's inconsistent with saying that there was a new offering that occurred on May 16th, 2017.

[00:11:01] Speaker 03:
I do just want to briefly to tie up my previous answer to say that if the court were to decide that Murphy is not the right test, we do win, I think, under any conceivable test for when a new offering would begin, but the right move would

[00:11:14] Speaker 03:
be to remand to the district court to apply that test in the first instance.

[00:11:18] Speaker 03:
I do want to, though, explain in more detail why the statute starts from a separate offering.

[00:11:25] Speaker 03:
The text, the context, and the purpose of the statute all support that conclusion.

[00:11:31] Speaker 03:
And that's how the Supreme Court read the text in CalPERS.

[00:11:34] Speaker 03:
In CalPERS, the court said that section 13 bars a claim more than three years after the offering upon which the claim

[00:11:44] Speaker 03:
And the court separately said that the claim has to be brought within three years of the relevant offering.

[00:11:51] Speaker 03:
And it would make a hash of Section 13 to understand that one single phrase in the statute that controls both Section 11 and Section 12A1 as having opposite meanings, each offering in the Section 11 context and only the first ever offer in the 12A1 context.

[00:12:10] Speaker 03:
And as we say in our brief, Congress knew how to set a first date ever

[00:12:13] Speaker 03:
rule, it did so in section 4A3.

[00:12:15] Speaker 03:
The rule that Ripple is arguing for here is one where an issuer would have future immunity for violations that have not yet occurred based on trickling a security into the market at low volume in venues that the ordinary public doesn't have access to and then years later saying we are making a

[00:12:36] Speaker 02:
Well, that seems to go maybe more to the question of whether it was bonafide offered to the public than to the question of whether there's a new offering.

[00:12:47] Speaker 02:
So I'm not sure.

[00:12:49] Speaker 02:
I understand the relevance of, you know, low volume, not well publicized to like was there an offer in the first place, but I'm not sure how it fits into the Murphy analysis.

[00:12:59] Speaker 03:
Right.

[00:12:59] Speaker 03:
I think I'm just making a more general point about the investor protection purpose of the statute, that the point of the statute is that there

[00:13:05] Speaker 03:
is an unregistered security claim for each unregistered offering, and that if you could trickle out a security for three or four years and then make a huge public offering, you would effectively be able to profit on making a fundamental economic change to your distribution without ever facing private enforcement actions.

[00:13:26] Speaker 03:
And that's not how Congress designed the statute.

[00:13:29] Speaker 04:
So, Counsel, am I correct in

[00:13:33] Speaker 04:
assuming that your argument is a trickle cannot be an offer?

[00:13:38] Speaker 03:
No, Your Honor.

[00:13:39] Speaker 04:
Well, I thought that's what you argued, that you can make a trickle and then make an offering.

[00:13:44] Speaker 04:
So it seems to me you were making a distinction between a trickle and an offering.

[00:13:48] Speaker 03:
So, right, we don't think that the trickle was a bona fide offer within the meaning of the statute, but the point I'm trying to make here is simply that Congress did not intend and did not design Section 13 to function in such a way that an issuer

[00:14:03] Speaker 03:
could make one type of offering, in this case a trickle, for three years and then say we are actually going to impose a new supply side restriction mechanism to take 90% of the security off of the market, increasing price by 30,000% and volume by 20,000% for the new purpose of targeting a new audience of investors

[00:14:25] Speaker 02:
And just to be sure, I think Judge Sanchez asked you this question, but I want to be sure I understand your answer.

[00:14:30] Speaker 02:
How did the escrow announcement alter the rights of existing XRP holders?

[00:14:44] Speaker 03:
So I think two things in your question, Your Honor.

[00:14:47] Speaker 03:
I don't think that it created a new security for people who had already purchased it.

[00:14:52] Speaker 03:
What Warfield says is you are looking at whether the transaction

[00:14:55] Speaker 03:
is an investment of money in a common enterprise with an expectation of profits for others.

[00:15:00] Speaker 03:
I don't think that there was a transformation of what was held by people who purchased in 2013.

[00:15:07] Speaker 03:
But the second thing is that the economic change that happened here had a massive effect on the types of products that Ripple was able to bring to market and that people would be able to

[00:15:21] Speaker 03:
to use and to enable appreciation of.

[00:15:26] Speaker 02:
But then I guess, and I think you were asked this before too, but I'm still not sure I understand how that's different from just a company selling stock.

[00:15:35] Speaker 02:
And in the first couple of years of selling stock, it's not a very good company and has few prospects.

[00:15:41] Speaker 02:
And then at some point in that period, it develops a very profitable new product.

[00:15:46] Speaker 02:
And now the stock is worth a lot, where it wasn't before.

[00:15:50] Speaker 03:
that doesn't transform it into a new offering if they're just Selling the same kinds of shares that they were selling before and then I'm not it's not clear to me why this is different Well, I think that would under Murphy potentially I mean if they were making an offering for the purpose of supporting a new product that didn't exist before then Potentially reasonable jury could conclude that there was a new offering but that's not all that happened here ripple

[00:16:15] Speaker 03:
change the number of shares that were available by offering them suddenly from discrete tranches.

[00:16:22] Speaker 03:
That is a new offering for which you would have to file a new registration statement.

[00:16:25] Speaker 03:
That's what Ripple told the SEC at 8ER 1730.

[00:16:28] Speaker 03:
They said, our offerings are episodic, and we'd have to file a new registration statement.

[00:16:34] Speaker 03:
A reasonable jury could credit that.

[00:16:35] Speaker 03:
This is not a case where Ripple suddenly becomes a better company and its stock becomes more valuable.

[00:16:41] Speaker 03:
All of the evidence that the district court bypassed showed that Ripple made intentional changes to its method of distribution and that that had an economic, and that that caused an order of magnitude economic difference for Ripple.

[00:16:53] Speaker 03:
But that's what Ripple's internal documents say and that's what it told investors that it was a sea change.

[00:16:58] Speaker 03:
So I'd like to reserve the rest of my time for a bottle unless there are further questions.

[00:17:02] Speaker 04:
Of course.

[00:17:02] Speaker 04:
Thank you, counsel.

[00:17:02] Speaker 03:
Thank you.

[00:17:03] Speaker 04:
Oh, before you leave, I just want to ask you one question.

[00:17:06] Speaker 04:
Is the statute of repose issue the only issue before us?

[00:17:09] Speaker 03:
No, Your Honor.

[00:17:11] Speaker 04:
In your view, what are the other issues that are before us?

[00:17:13] Speaker 03:
So there's, Ripple has the alternative argument that they're not a solicitor.

[00:17:18] Speaker 04:
Oh, but I mean in terms of the cost and exclusion of the expert and the class certification.

[00:17:24] Speaker 04:
Would you agree those are not before us?

[00:17:26] Speaker 03:
No, we don't agree, Your Honor.

[00:17:27] Speaker 03:
If by not before us you mean that whether or not the court has jurisdiction over those, no.

[00:17:31] Speaker 03:
We think the court does have jurisdiction.

[00:17:33] Speaker 04:
Oh, you think that was included in the certification order?

[00:17:38] Speaker 03:
Yes.

[00:17:38] Speaker 03:
I mean, I can give you like a 30... That's okay.

[00:17:41] Speaker 04:
I just want to... That just brought up something.

[00:17:45] Speaker 01:
Do we need to reach the question whether XRP is a security in order to resolve this case?

[00:17:51] Speaker 03:
No.

[00:17:52] Speaker 03:
I don't think so.

[00:17:53] Speaker 03:
I mean, I think that the question of whether XRP is a security is intertwined with the opposed question on the basis of some of our alternative theories that we've presented.

[00:18:04] Speaker 03:
You know, if the court were to reject

[00:18:07] Speaker 03:
our position that it is a different offer of the same security and that it's a different security, and we're to reach our argument that it wasn't a security before 2017.

[00:18:17] Speaker 03:
I mean, I think it would be enough for the court to just say there's a material dispute about whether the statements linking Ripple's efforts to profits were widely enough distributed.

[00:18:28] Speaker 03:
I think that would be enough on that particular issue, but I do think

[00:18:33] Speaker 03:
you know, to be candid at that third stage, which we don't think the court needs to reach, that there is some intertwinement.

[00:18:39] Speaker 04:
All right.

[00:18:39] Speaker 04:
Thank you.

[00:18:40] Speaker 04:
Thank you.

[00:18:57] Speaker 00:
Good morning, Your Honors.

[00:18:58] Speaker 04:
Good morning.

[00:19:00] Speaker 00:
I'm sorry, Your Honor.

[00:19:01] Speaker 04:
I say good morning.

[00:19:02] Speaker 00:
Oh, good morning.

[00:19:05] Speaker 00:
Gregory Rapaway for Ripple Labs.

[00:19:08] Speaker 00:
And may it please the court.

[00:19:12] Speaker 00:
XRP was bona fide offered to the public within the meaning of Section 13 no later than June 2015.

[00:19:17] Speaker 00:
Therefore, the repose period ended no later than June 2018 and the class's claims against Ripple are time barred.

[00:19:26] Speaker 00:
There are essentially two theories

[00:19:28] Speaker 00:
three if you count bonafide public offering, but I think two principal theories on which Mr. Sostak challenges that ruling.

[00:19:34] Speaker 00:
One of them is what I think of as the new investment contract theory where he says that the Howey factor has changed, and the other is the separate offering theory on which he says that the Murphy factor has changed.

[00:19:45] Speaker 00:
I think analytically those are different and they're in a different procedural posture.

[00:19:49] Speaker 02:
But before you get to those, could we talk a bit about whether there was, in fact, a bona fide public offering in the first place?

[00:19:57] Speaker 02:
And maybe focusing on the XRP ledger.

[00:20:02] Speaker 02:
I understand that you have information about the number of wallets and the number of trades with those wallets.

[00:20:11] Speaker 02:
Did you provide any evidence of the number of actual people who were purchasing XRP from the XRP ledger and what, if any, their relationship was to the company?

[00:20:27] Speaker 00:
We can't name the owners of individual wallets because no one can do that, Your Honor.

[00:20:32] Speaker 00:
But we did provide evidence that there were individuals discussing XRP sales in public fora in 2013 and 2014, and there's no suggestion that those people were related to Ripple.

[00:20:46] Speaker 00:
We provided evidence that XRP was publicly traded on the digital asset exchanges.

[00:20:50] Speaker 00:
I'm not talking about the on-letter trades now, but the Poloniex, the Kraken, the Bittrex trades.

[00:20:56] Speaker 00:
And those are the same types of trades that Mr. Sostak alleges are offers to the public.

[00:21:04] Speaker 00:
In fact, he himself purchased XRP for Bitcoin on Poloniex in 2018.

[00:21:09] Speaker 00:
So we offered evidence that you could do the exact same thing in 2014.

[00:21:13] Speaker 02:
But those weren't offer.

[00:21:14] Speaker 02:
I mean, those seem to be potentially different because those aren't offers by you.

[00:21:19] Speaker 02:
They're transactions between third parties, right?

[00:21:22] Speaker 00:
So I don't think that's required, Your Honor, because I think that the bona fide offer date for non-inventory security is when trading begins in the security.

[00:21:33] Speaker 00:
And I'd cite the court to the pink sheet cases like Kubik and Laser Arms that are in our brief, where when you have, in those cases, this was before digital assets, but you have a national quotation service publishing the quotes

[00:21:48] Speaker 00:
that's sufficient to tell that there has been a bona fide public offer by that date.

[00:21:53] Speaker 02:
But I can also... I guess the concern here, and one of the amicus briefs elaborates on this, is if you imagine taking it out of the crypto context, a company selling stock and they sell it to anybody who comes by, as long as they go to the door in the basement and knock three times between midnight and 2 a.m., and a bunch of people who they've told know that and go and buy it,

[00:22:21] Speaker 02:
And they carry that on for three years.

[00:22:24] Speaker 02:
And then after the expiration of three years, then they take out an ad in the New York Times and start selling it to widows and orphans.

[00:22:31] Speaker 02:
And so I think the concern is that the position that you're advocating for seems like it would allow people to do that.

[00:22:40] Speaker 02:
So maybe you can address that.

[00:22:41] Speaker 00:
So I think that the test is whether the offer was genuine.

[00:22:45] Speaker 00:
And I believe that the Second Circuit's decision in peace tolls that distinguishes a genuine from a sham offer

[00:22:50] Speaker 00:
is the right one to apply.

[00:22:52] Speaker 00:
And I think that in this case, we don't have that sort of only knock between 12 and 2 type of situation that Your Honor is suggesting, because Ripple published on its website that it was giving the XRP away to users, that it was selling it to market makers, that it was giving it to developers.

[00:23:08] Speaker 00:
And I'd point, Your Honor, there's a passage at seven excerpts of record, 1401 to 1412.

[00:23:13] Speaker 00:
And then 1404 is maybe the best one for my purposes.

[00:23:20] Speaker 00:
where it talks about distributions to users because, quote, everyone needs a small amount of XRP and then distributions to, quote, market makers because, quote, liquidity is incredibly important.

[00:23:31] Speaker 00:
So you could have, I mean, maybe you couldn't find it in the New York Times, but you could run a Google search.

[00:23:35] Speaker 02:
And then what do we do with the fact that we have statements from the company in 2016 saying we don't sell it to consumers and the email from Mr. Vias in 2017 that there aren't tools to buy it, no clear signs of its use by anyone.

[00:23:52] Speaker 02:
I mean, doesn't that at least create a factual question as to whether this was genuinely being sold to the public?

[00:24:02] Speaker 00:
I don't think it was, Your Honor, because I think if you follow those sites back to the full context in the record, they wouldn't support a reasonable jury in drawing that inference.

[00:24:10] Speaker 00:
So for example, let's look at the quotes from the CEOs, Mr. Larson and Mr. Garlinghouse, that Ripple did not sell XRP to the public.

[00:24:17] Speaker 00:
He cites those at 2ER 271.

[00:24:21] Speaker 00:
But the same CEO testimony, if you read a little bit further on, they do testify specifically that there were sales to market makers, and the market makers were out there selling to anyone who would buy

[00:24:31] Speaker 00:
and they talk about the giveaways and the giveaways were going to anyone and then those people could resell it as well.

[00:24:36] Speaker 01:
Would that be to the public if the market makers are financially sophisticated?

[00:24:42] Speaker 00:
So Mr. Sostak's position is that the market makers were Ripple's execution agents and that they were selling on to the public.

[00:24:50] Speaker 00:
And so when we challenged whether he ever bought XRP directly from Ripple,

[00:24:55] Speaker 00:
He pointed to sales by the market makers and said, they're selling on behalf of Ripple.

[00:25:00] Speaker 00:
They're Ripple's agents.

[00:25:01] Speaker 00:
Therefore, I bought from Ripple.

[00:25:03] Speaker 00:
Now, whether we would agree at the merit stage, whether they're agents or not, that's maybe a separate question.

[00:25:08] Speaker 00:
But for purposes of summary judgment, the district court was entitled to look to Mr. Sostak's version of the case and to those representations that he's made that the market sales

[00:25:16] Speaker 00:
by the market makers were sales by Ripple for statutory purposes.

[00:25:21] Speaker 01:
I mean, to me, the clearest example of what might be a bona fide offer is the sale on the XRP ledger itself, because at least that seems to be something where there's something more offer-like as opposed to just things showing up by other parties on digital exchanges.

[00:25:36] Speaker 00:
Yes, Your Honor, absolutely.

[00:25:37] Speaker 00:
And in connection with that, I'd also like to point you to the evidence in the record about the Ripple, first the Ripple client and then the Ripple trade apps.

[00:25:44] Speaker 00:
that allowed, quote, anybody who is interested to, quote, access the XRP ledger and ellipsis have a wallet.

[00:25:52] Speaker 00:
So that's five excerpts of records, 855 to 857, and then there's some further discussion in the depositions in seven excerpts of record, 1329, 1336, and then starting at 1478.

[00:26:03] Speaker 00:
So Ripple made an app to go out there and allow people, people who wanted to could use that app to buy it.

[00:26:09] Speaker 00:
The argument on the other side is not that these, oh, and I should also point to Mr. Sostak's own admission and discovery that, quote, some members of the public could purchase XRP on cryptocurrency exchanges before July 3rd, 2015, supplemental excerpts 258, excuse me.

[00:26:29] Speaker 00:
And I also would challenge, if I may, the premise that it has to be a sale by Ripple directly.

[00:26:34] Speaker 00:
Because if Ripple, if you have a situation with a traditional stock,

[00:26:38] Speaker 00:
where the issuer sells to the underwriter and the underwriter sells to the public.

[00:26:43] Speaker 00:
There's no doubt that at the time the underwriter is selling.

[00:26:45] Speaker 00:
That's a bona fide offer to the public.

[00:26:47] Speaker 00:
Now, we're not arguing that there are underwriters here, but I think that's enough to show that the issuer doesn't have to make direct sales as part of the offering for the offering to be a bona fide offer to the public.

[00:26:58] Speaker 00:
The correct test is whether members of the public could go out there and, by doing something as simple as running a web search,

[00:27:08] Speaker 00:
find out how to buy this stuff, and then buy it if they chose.

[00:27:11] Speaker 00:
And I also want to point to the XRP forum chat post that Mr. Sostak relies on, because I think that's one that needs some more context, too, where there's a statement that Ripple doesn't sell to consumers.

[00:27:24] Speaker 00:
That's at 4 excerpts of record, 779.

[00:27:27] Speaker 00:
But if you read on, it says, but go to xrpchat.com.

[00:27:30] Speaker 00:
There's easy directions for purchasing XRP there.

[00:27:33] Speaker 00:
So the contention that a reasonable jury can pursue that as saying, oh, it's not available to the public, it hasn't been offered to the public, I think is a little strained.

[00:27:42] Speaker 01:
So then can you address the argument about a new offering in 2017?

[00:27:48] Speaker 00:
OK, a new offering as opposed to a new security.

[00:27:50] Speaker 00:
So the murky version of the argument, or both?

[00:27:52] Speaker 01:
Feel free to tackle both.

[00:27:54] Speaker 01:
I think the offering one might have more traction on security, but go ahead.

[00:27:58] Speaker 00:
I'll start with the separate offering theory.

[00:28:00] Speaker 00:
So first, on the statute, section 13

[00:28:03] Speaker 00:
is inconsistent with the argument that later offerings restart the repose period.

[00:28:08] Speaker 00:
The statutory language starts the period when the security was bona fide offered to the public.

[00:28:13] Speaker 00:
And it doesn't say anything to suggest that a later offering would restart that date.

[00:28:18] Speaker 00:
And the Murphy case, which has been relied upon, addresses integration of offerings for registration purposes.

[00:28:25] Speaker 00:
It says nothing about repose.

[00:28:27] Speaker 00:
And I think the Fourth Circuit's analysis in the Cavaness case that we've cited in our

[00:28:31] Speaker 00:
saying that really, I'll paraphrase, but you can find the full quote in our brief, that the Murphy factors have nothing to do with the statute of limitations is persuasive and this court should follow it.

[00:28:44] Speaker 00:
The argument's been made that this is inconsistent with our position in the district court.

[00:28:50] Speaker 00:
I don't agree with that.

[00:28:51] Speaker 00:
At the summary judgment stage, we argued that on the facts, the Murphy factors did not support a separate offering.

[00:28:59] Speaker 00:
And I still agree with that, and I'll get to that in a moment.

[00:29:02] Speaker 00:
But at the motion to dismiss stage, when this issue first came up, we argued even if the court accepts that defendants made ongoing multiple offerings, the statute of repose would still bar plaintiff's claims because the statute of repose begins to run on the first such offering.

[00:29:15] Speaker 00:
That's supplemental excerpts of record 859.

[00:29:17] Speaker 00:
That's the exact claim that Mr. Sostak

[00:29:20] Speaker 00:
alleged that we never made, or that we somehow abandoned, or that we gave up.

[00:29:24] Speaker 00:
And it's right there in the record that we made it.

[00:29:26] Speaker 01:
So can you address the argument that because of Ripple's escrowing and changing the value of XRP in a really fundamental way, that the sales amounted to a new offering?

[00:29:42] Speaker 01:
So first, I want to point out that- Not about whether Repose would apply or not, but just is that even a new offering?

[00:29:48] Speaker 00:
So we would argue that it's not, because XRP is fungible, because at the time that, right after the escrow was announced, whether you want to count it from the date of the announcement of the escrow or after the escrow was implemented, there was no difference in value between a piece of XRP being held, a unit of XRP being held by somebody who bought it in 2013 or 2015 and somebody who just bought it after the escrow was announced.

[00:30:12] Speaker 00:
There was also no difference between what the two of those people could do with their XRP.

[00:30:17] Speaker 00:
It's true that the

[00:30:18] Speaker 00:
The point was made that the escrow amendment added new functionality to the ledger so you could make escrow contracts after that point.

[00:30:26] Speaker 00:
But everybody could make escrow contracts after that point.

[00:30:28] Speaker 00:
And it was always contemplated that the XRP ledger would develop.

[00:30:31] Speaker 00:
That was not something new.

[00:30:33] Speaker 00:
It was open source.

[00:30:34] Speaker 00:
Ripple has never controlled it.

[00:30:35] Speaker 00:
Changes have been made to the XRP ledger over Ripple's objection.

[00:30:39] Speaker 00:
This particular change, Ripple did advocate for, but it wasn't a fundamental change in the concept that we're going to have this XRP ledger

[00:30:47] Speaker 00:
And we're going to have this technology that will allow cross-border payments.

[00:30:52] Speaker 00:
Cross-border payments were part of the deal from very early on.

[00:30:54] Speaker 00:
We've cited evidence in our brief.

[00:30:56] Speaker 00:
I can give you record sites if you need them.

[00:30:57] Speaker 01:
But what about the argument that Ripple would have to create a new registration statement that incorporated this new information about the escrowing and other important things?

[00:31:07] Speaker 00:
I mean, that's the argument that we would have to do that.

[00:31:11] Speaker 00:
And it's even suggested that we said to the SEC that we would.

[00:31:15] Speaker 00:
What we really said to the SEC is the reason it makes no sense to treat this asset as an investment contract is because we'd constantly have to be re-registering it, because we're constantly changing what we're doing with it.

[00:31:25] Speaker 00:
The whole point of this is that it's an innovative technology.

[00:31:28] Speaker 00:
And it's not just that.

[00:31:29] Speaker 00:
It's not just that we'd have to make the changes.

[00:31:30] Speaker 00:
It's that we wouldn't know when we'd have to make the changes.

[00:31:33] Speaker 00:
Because Mr. Sostak's position to this Court is you need a jury to tell you, not that it definitely was, not that you could tell in advance that it was, but you need a jury to tell you whether

[00:31:43] Speaker 00:
the announcement of the escrow or the implementation of the escrow or maybe some other combination of factors constitutes the offering of a new security.

[00:31:50] Speaker 00:
And on that theory, how could anyone who was trying to operate in this industry, and this is a valuable technology that has done a lot of good for the world, how could anybody who was trying to operate in this industry ever know the precise date on which some plaintiff might later allege, oh, that's when you should have made the new public offering?

[00:32:08] Speaker 00:
And that, I think, Your Honor, takes me back to the inconsistency point and the argument that the theory on which this claim was pressed at class certification and on which class certification was obtained is fundamentally inconsistent with the argument of an ever-changing investment contract where only a jury can tell you which facts are enough at any given point in time.

[00:32:29] Speaker 00:
Because at that class certification stage, the argument was made to the district court that there would be, quote, identical evidence, end quote, for every class member that's

[00:32:37] Speaker 00:
supplemental excerpts of record 830.

[00:32:40] Speaker 00:
And that includes sales.

[00:32:41] Speaker 00:
At that time, they were seeking a class that went back to May 3.

[00:32:45] Speaker 00:
So that's before the escrow was even announced.

[00:32:47] Speaker 00:
So the evidence was going to be identical at May 3.

[00:32:49] Speaker 00:
And then the evidence was going to be identical in, let's say, June after the escrow was announced.

[00:32:53] Speaker 00:
And then it was going to be identical in 2019 after the escrow was implemented.

[00:32:56] Speaker 00:
And also identical, I think, in 2020 after Ripple stopped even making direct sales on the ledger, if that mattered.

[00:33:02] Speaker 00:
But at that time, the theory that Sostak committed himself to was

[00:33:07] Speaker 00:
This is all the same.

[00:33:08] Speaker 00:
It's all fungible.

[00:33:09] Speaker 00:
It's all interchangeable.

[00:33:10] Speaker 00:
And he did that so that he could prove whether it was a security on a class-wide basis.

[00:33:14] Speaker 00:
And I think that fairness and also good judicial administration strongly suggest that the district court should not be reversed for taking into his word and saying, the question in this case is whether XRP is a security.

[00:33:28] Speaker 00:
That was his phrasing at that time.

[00:33:30] Speaker 00:
He's abandoned it now, but that's what he said many times.

[00:33:32] Speaker 00:
And we've cited the examples in our brief.

[00:33:34] Speaker 00:
Whether XRP is a security.

[00:33:36] Speaker 00:
Okay, then when was XRP bona fide offered to the public?

[00:33:39] Speaker 00:
That was a reasonable and correct way to decide this case.

[00:33:42] Speaker 00:
It should not be overturned on the basis that on appeal for the first time, he's embraced the idea that the investment contract is ever-changing.

[00:33:51] Speaker 04:
I'd like to spend a minute on the privity argument, if that's... Counsel, do you agree that the cost issue, the exclusion of the expert, is before us?

[00:34:03] Speaker 00:
No.

[00:34:04] Speaker 00:
No, we think the court has no jurisdiction over that.

[00:34:06] Speaker 00:
I mean, I don't think it could have been certified.

[00:34:08] Speaker 00:
I don't think it was certified.

[00:34:10] Speaker 00:
Actually, those are the two things.

[00:34:12] Speaker 00:
Don't think it could have been.

[00:34:13] Speaker 00:
Don't think it was.

[00:34:14] Speaker 00:
Even it would have been interlocutory order, not subject to rule 54B, and it wasn't in the actual rule 54B order that was entered.

[00:34:23] Speaker 00:
On the privity argument, this is an alternative ground for firmance that you could also affirm on the basis that members of the class did not purchase

[00:34:33] Speaker 00:
XRP from Ripple.

[00:34:35] Speaker 00:
And under footnote 21, if Supreme Court's opinion in Pinter versus Dahl draws the distinction that we think is relevant here, that Section 12 does not permit recovery from a seller's seller.

[00:34:48] Speaker 00:
And in response to that, Mr. Sostak has cited the Pino case.

[00:34:52] Speaker 00:
And I think the Pino is a very different situation in which you had

[00:34:55] Speaker 00:
people who were, in fact, buying from the issuer, but they were being urged to buy from the issuer directly by Mr. Cardone, one of the defendants in that case, who was essentially acting as an agent for the issuer because he owned and controlled the issuer and stood to make money.

[00:35:13] Speaker 00:
And he was out there on social media saying, I am offering investment opportunities.

[00:35:18] Speaker 00:
Well, then it might be fair to hold him to having been the one who offered the investment opportunities for purposes of Section 12,

[00:35:24] Speaker 00:
on the reasoning in Pinter that the question is whether the buyer could have reasonably thought that in ordinary usage they were buying from this person.

[00:35:35] Speaker 00:
But when you have a situation here where most of the class's purchases, the vast majority of the class's purchases, were going to be on blind bid ask trades on exchanges with no evidence whatsoever of any connection with Ripple, with no knowledge of the counterparty's identity,

[00:35:54] Speaker 00:
to say that on a solicitation theory you can support the idea that these people are buying from Ripple, I think, is taking it a step too far.

[00:36:06] Speaker 00:
And if the court has no further questions.

[00:36:09] Speaker 01:
Let me ask you what I asked counsel before the end of his argument.

[00:36:13] Speaker 01:
Do we need to reach the question of whether XRP is a security?

[00:36:16] Speaker 01:
I think I know what your answer is going to be, but why don't you answer it.

[00:36:19] Speaker 00:
My answer is definitely that you do not need to reach that question.

[00:36:22] Speaker 00:
I do think you should assume

[00:36:24] Speaker 00:
and affirm this report's assumption that XRP is a security because that's the basis on which Mr. Sostak argued the case.

[00:36:31] Speaker 00:
But I don't think you should attempt to answer on this record and on this briefing whether XRP is a security or whether investment contracts were sold at all.

[00:36:38] Speaker 00:
That would be for the trial if there was a trial.

[00:36:40] Speaker 00:
But we don't need to have a trial because the claims are barred by repose.

[00:36:43] Speaker 04:
All right.

[00:36:44] Speaker 04:
Thank you, counsel.

[00:36:45] Speaker 04:
Let's have two minutes for rebuttal.

[00:36:52] Speaker 03:
My friend's presentation reflects that there is a fact dispute about whether XRP was bona fide offered to the public before 2017.

[00:37:00] Speaker 03:
Ripple's executives, both of their CEOs, testified that Ripple did not sell to the public.

[00:37:06] Speaker 03:
Ripple's corporate representative testified that the public had recognized that the public could not have known that XRP, that Ripple was selling programmatically before it disclosed that to the public.

[00:37:17] Speaker 03:
Mr. Villas testified that the ledger was so complicated that he could not figure out how to transact on it.

[00:37:23] Speaker 03:
The only evidence that my friend offers in rebuttal is really that you could make wallets on the ledger.

[00:37:30] Speaker 03:
But the fact that you could make an account to trade doesn't mean that it was possible for an ordinary investor to transact in XRP before Ripple started its push to target retail investors in 2017.

[00:37:44] Speaker 03:
Ripple's VP of Marketing,

[00:37:46] Speaker 03:
said in August of 2016 that there was no easy, convenient way to buy XRP today.

[00:37:51] Speaker 03:
A reasonable jury could credit all of those internal and external statements.

[00:37:56] Speaker 03:
I do want to emphasize that fungibility does not matter for purposes of determining whether there is a new offering.

[00:38:02] Speaker 03:
You have to register an offering of a security if you are making a new distribution, even if it's the same security.

[00:38:10] Speaker 03:
And in 2017, Ripple made a new

[00:38:13] Speaker 03:
distribution of XRP through these separately locked up escrow tranches.

[00:38:18] Speaker 03:
So it's irrelevant to the Murphy analysis, I think, whether or not one person who bought in 2015 by 2017 had the same XRP as other people.

[00:38:28] Speaker 03:
What matters is whether the economics of this mode of distribution was the same.

[00:38:33] Speaker 03:
And there was a difference.

[00:38:34] Speaker 03:
Ripple solved the overhang problem.

[00:38:36] Speaker 03:
It took 90% of the shares off of the market, packaged them into discrete tranches, and then started selling to the public, which increased price by 30,000%.

[00:38:45] Speaker 03:
It would have needed to file a new registration statement for that.

[00:38:50] Speaker 03:
That's a new offering.

[00:38:52] Speaker 03:
The repose clock for Sausage's claim starts then.

[00:38:55] Speaker 03:
Thank you.

[00:38:55] Speaker 04:
Thank you.

[00:38:56] Speaker 04:
Thank you to both counsel for your helpful arguments.

[00:38:58] Speaker 04:
The case just argued is submitted for a decision by the court, and we are adjourned.