XRP holders got a nice surprise last week when Elon Musk tweeted concerns about Bitcoin’s energy consumption, sending investors fleeing for more environmentally-friendly options. Rated as the least electricity-guzzling of all cryptocurrencies, XRP bounced up nearly 20 percent over a two-day period to nearly $1.50 after the Tesla CEO made his feelings known.

It might have gone higher if it were not threatened with extinction by the U.S. Securities and Exchange Commission. The bitter legal feud, in which the agency has claimed creator Ripple Labs issued XRP as an unregistered security, continues to move forward despite public criticism of the SEC’s position.

Both sides have scored points for themselves over the course of the litigation, which is still in the pre-trial discovery phase. The outcome of a hearing Friday, however, could potentially give a substantial advantage to the regulator. (Assuming that a settlement under the recently-confirmed, more crypto-friendly SEC Chair Gary Gensler isn't in the works.) 

Described somewhat innocently in court filings as “an informal conference,” the hearing will focus on the SEC’s demand that Ripple hand over “documents constituting, transmitting, or discussing any legal advice Ripple sought or received” about whether XRP “would be subject to, and in compliance with, federal securities laws.” In other words, the agency wants access to Ripple’s communications with its lawyers, things that would usually be protected by attorney-client privilege.

This could be bad for Ripple in a number of ways. The San Francisco-based tech company, led by Brad Garlinghouse, has asserted  that it “reasonably understood” XRP would not be considered a security. Ripple has also pointed out that the agency has been inconsistent on those determinations, by designating Bitcoin and Ether as exempt.

Any sign that Ripple was warned by its lawyers that it might trigger securities laws would help the SEC cement its case — and kneecap one of the tech firm’s key defenses. This isn’t an unlikely scenario. A good lawyer should advise a client on all risks and outcomes, even remote ones. If Ripple’s legal professionals were doing their jobs well, they would have at least discussed the possibility of regulatory blowback. Cherry-picking comments to that effect would be easy for the agency to do.

Then there is the off-chance that the SEC will score a real windfall and find something more devastating than it was expecting. Privilege allows lawyers and clients to discuss issues and concerns freely, without fear (ordinarily) that the communications could be revealed in court. Prying eyes looking for dirt in privileged materials often find it.

Meanwhile, the court is weighing whether to let an army of at least 17,000 XRP investors into the case to voice support for Ripple. The SEC urged U.S. District Judge Analisa Torres, in Manhattan, to reject their request, arguing that the move would “sow chaos into this litigation by, for example, opening the door to intervention by other XRP investors who believe defendants offered and sold XRP as a security and have already brought class actions against Ripple.”

The agency also complained that the lawyer leading the effort for the investors, John Deaton, has made “inflammatory public statements attacking the SEC and its staff." The agency added that Deaton "uses profanity and references physical violence" in the commentary.

In a court filing Monday, Deaton bristled at the SEC’s comments. The lawyer said he has used Twitter, YouTube and other social media to communicate with XRP investors about events in the case, and try to minimize disruption from thousands of cryptocurrency holders piling onto conference call lines for remote hearings.

Deaton also made a video showing a “satirical humorous exaggerated mock cross examination” of former SEC Chair Jay Clayton “incorporating special effects and humorous scenes from the iconic lawyer movie, My Cousin Vinny.”

The lawyer, who described himself as a former special assistant U.S. Attorney, adjust law professor, mass tort product liability lawyer, and medically retired Marine Corps judge advocate, argued the SEC was trying to “divert the court’s attention” by portraying him as an “unhinged conspiracy theorist.”

Whatever happens Friday, one thing is reasonably certain: the agency’s officials will probably never get better at taking a joke.

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