district william hinman ethereum

Small victory for Ripplein its never-ending lawsuit against the US Security Exchange Commission (SEC), thanks to thelatest emails revealed by Empower Oversightshowing thatWilliam Hinman acted with improper conduct, in full conflict of interest.

Ripple’s victory and the revelation of improper conduct for SEC officials

The non-profit organizationEmpower Oversight filed a FOIA request in August 2021 on suspicions of improper conduct by SEC officials regarding the XRPlawsuit that appears to havefinally been answered.

It consists of no less than200 pages of emails that the SEC has revealedshowing how the former director of the US regulator’s corporate finance division,William Hinman, acted in violation of the conflict of interest several times.


Hinman warned by SEC of conflicting Ethereum interest

The report shows the SEC ethics office cautioned Hinman to avoid any matters that might affect Simpson Thatcher while he still had financial interest in the law firm.

  • SEC ethics official Shira Pavis Minton personally warned Hinman to avoid any communication with the firm in an email exchange.
  • Minton also asked about any financial ties between the entity and Hinman.
  • To qualify for tax exemptions, Hinman said he would divest once he started his job at the SEC.

Empower Oversight claims that Hinman continued to meet with Simpson Thatcher during his tenure, despite the SEC ethics office’s warnings.

It further alleges that Hinman contributed to the public perception that the SEC did not equally apply clear rules when evaluating cryptocurrencies.

Gary Gensler, chair of the Securities and Exchange Commission. Gensler, continues to litigate the case, which, if successful, would have far-reaching regulatory implications for the $1 trillion crypto industry.(Bill Clark/pool/AFP via Getty Images / Getty Images)

Netburn’s most recent ruling dismissed the SEC revision to its argument that Hinman wasn’t merely stating a personal opinion, but making an argument on behalf of the government thus retaining a level of confidentiality.


The legal tussle over the Hinman drafts began in January, when Judge Netburn ordered the SEC to turn over other documents to the court while she weighed whether Ripple could gain access to them.

The SEC is expected to appeal Judge Netburn’s ruling to Federal District Judge Analisa Torres.

Most token projects and companies look at Bitcoin and Ethereum and say “we want to be like them.”

So when William Hinman, director of the SEC’s Division of Corporation Finance gave a speech at the Yahoo Finance All Markets Summit on June 14, 2018 suggesting that Bitcoin and Ethereum were not securities and laid out an argument that they were sufficiently decentralized, it got a lot of people’s attention in the crypto sector.

The basic reasoning behind the decentralization framework is that if a project is truly decentralized and there is no central actor or actors, then there really is no “issuer” and there is no possibility that the central actor(s) can act on insider information or otherwise have information asymmetry.

The crypto industry has been pressing the SEC to codify this logic in a set of rules that projects and companies can follow.

The classification of Ethereum as not being a security was a highlight of the speech. With this letter, it appears the Commission agrees with Hinman that Ethereum is indeed not a security. Also, in June 2018, Clayton identified Bitcoin and similar cryptocurrencies which are substitutes for fiat currency as not being securities.

A Nuanced Approach to the Utility vs.
Security Debate

While stating that there is an already laid down set of guidelines for determining the regulatory status of a cryptocurrency, Clayton did admit that given the unique nature of virtual assets, the question of whether a token is a security or not might require a more nuanced approach.

According to Clayton, the SEC continues to employ a transparent process of engaging with stakeholders in the industry concerning the regulatory status of cryptocurrencies.

Orders requiring the SEC to turn over internal documents related to a 2018 speech on digital assets aren’t just wrong on the law, they are likely to have a chilling affect on policy deliberations throughout the federal government, the agency says.

The Securities and Exchange Commission is fighting to keep Ripple Labs Inc. from getting documents related to the speech by William Hinman, then the Director of the Division of Corporation Finance.

Magistrate Judge Sarah Netburn rejected the agency’s objections based on relevance and the deliberative process privilege in a series of discovery orders this spring.

If there is no appeal from the SEC, Ripple can ask Hinman to testify about the reasoning behind his decision on ETH at the time, and then attempt to apply that samrationale to XRP.

Ripple has argued that the SEC cannot regulate XRP as a security because it is a medium of exchange used for international and domestic transactions.

According to Bloomberg, the SEC fought the subpoena, saying the questioning “would subject high-level government officials to depositions regarding every law, regulation, or policy they consulted on or spoke about and that later underlay an enforcement action.”

The financial regulator also argued that it does not speak through its staff or individual commissioners but only through enforcement actions, so anything Hinman ever said is privileged as “deliberative”.

SEC disclose documents regarding a potential conflict of interest in the actions of former high-ranking officials. The lawsuit is filed in the Eastern District of Virginia.

The plaintiff is requesting access to documents by the Freedom of Information Act (FOIA).

“The statements of some former Commission officials about whether specific cryptocurrencies are securities and therefore subject to SEC regulation raise serious questions about the existence of a possible conflict of interest,” the lawsuit said.

In August, human rights activists announced the probable affiliation of the former head of the corporate finance department of the regulator William Hinman, the former chairman of SEC Jay Clayton, and the head of the unit that filed the lawsuit against Ripple, Mark Berger.

The first in 2018 stated that Ethereum does not have the properties of securities.

Ripple, Brad Garlinghouse or Chris Larsen violated Section 5 of the Securities Act when they offered and sold XRP during 2013 or yesterday. The SEC could have completely avoided amici’s involvement by simply stipulating secondary market sales of XRP, independent of Ripple, are not securities. It should’ve been an easy stipulation considering it would be consistent with SEC guidance and 76 years of legal precedent.

Had the SEC so stipulated, amici’s involvement in this case would have ended before it began.
In fact, even Ripple was clear in communicating its position that amici’s interest would be minimal, if the SEC clarified it was not attempting to establish XRP as a security per se.

Similarly, in responding to the Mandamus Writ, the SEC could have confirmed its suit is not intended to affect the secondary retail market for XRP in the United States.

Hinman’s opinion, but the opinion of the Division of Corporation Finance, so they were covered by attorney-client privilege and should remain confidential. The SEC’s evolving characterization of Hinman’s speech has irked Netburn, who ruled Tuesday that the SEC must turn over the materials to the court, denying its request for attorney-client privilege and making an unusually harsh assessment of the agency’s motives.

“The hypocrisy in arguing to the court, on the one hand, that the speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency and, on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his speech, suggests that the SEC is adopting its litigation positions to further its desired goal and not out of a faithful allegiance to the law,” Netburn said.

An SEC spokesman had no comment.

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