Takeaways
- The district court denies the SEC’s request to clarify email and speech related to ethereum.
- Emails from the former SEC director show that he was warned by email about possible conflicts of interests arising out of his previous employer’s relationship
A judge ruled that the SEC cannot clarify or edit the content of the emails for the Ripple labs trial. The SEC released hundreds of email between top SEC officials.
These emails may prove to be important if it is shown that SEC acted inconsistantly when accusing RippleLabs executives for securities violations after they ruled that ether, a rival cryptocurrency was not a financial.
Last week, Empower Oversight released over 200 emails from current and former SEC staff. The emails, it claims, prove that there are conflicts of interests in the way the SEC selects enforcement actions against companies dealing with digital assets.
The emails, which Empower Oversight received from a Freedom of Information Act request, specifically relate to William Hinman. Hinman worked as the director of SEC’s corporate finance division between May 2017 and December 2020.
Hinman was a lawyer at Simpson Thacher before he joined the SEC. The firm is a member of the Enterprise Ethereum Alliance which promotes the use commercially. Hinman, who left the SEC in 2013, has now returned to Simpson Thatcher.
These emails, mostly Shira Pavis Minton (the designated agency ethical official of the SEC), warn Hinman not to get involved in SEC affairs that may impact Simpson Thacher, due to Hinman’s financial involvement in the firm. It was advised that he not meet anyone at Simpson Thacher.
Empower Oversight released a press release stating that Hinman had met several times with Josh Bonnie, an attorney at Simpson Thacher after he was warned of the potential conflict. Former SEC Director also met investors and co-founders in Ethereum before delivering his speech in 2018, declaring that ether was a token rather than a security. Empower Oversight claims that the speech was a positive influence on ether’s price and could have benefited Simpson Thacher.
“This raises questions as to whether Hinman fully disclosed Simpson Thacher’s role in Ethereum from SEC ethics officials and whether they would have approved the meetings or his speech if he had,” Empower Oversight made a public statement.
Some people speculate that Ripple’s team could be able to prove the SEC was interested in promoting and protecting Ether over similar tokens.
“This type of conflict of interest within a critical financial industry regulator is highly volatile in terms of undermining an already rocky public trust of government administration,” Michael Fasanello is the chief compliance officer at financial services company LVL. “Doubt raised from these internal documents could affect not just the Ripple case, but other cases involving digital assets as well.”
Empower Oversight’s team agrees. In December 2021, the nonprofit sued SEC over Hinman’s conflict with Simpson Thacher. In the suit, it is also mentioned that Marc Berger was the former director of SEC’s enforcement division, and the main initiator in the case against Ripple labs. He also left SEC to work for Simpson Thacher.
Some are less sure about the role the emails could play in the Ripple lawsuit, or if they will even be relevant.
“The SEC always picks and chooses. It can’t sue everyone all at once,” David Tawil said that the crypto hedge funds firm ProChain Capital is headed by David Tawil. “There has to be more evidence relating to Ripple specifically.”
The contents of Hinman’s 2018 speech and the emails will still be up for debate in the next trial. James K. Filan, XRP’s attorney announced Wednesday that a judge denied the SEC’s request to review and clarify the contents of the email or speech.
“The SEC’s assertion that the Speech was intended to communicate [the SEC division of corporation finance’s] approach to regulating digital asset offerings is inconsistent with the SEC’s and Hinman’s previous position that the Speech was intended to and did reflect his personal views,” District Judge Analisa Torres’ decision read.
“The SEC seeks to have it both ways, but the Speech was either intended to reflect agency policy or it was not. Having insisted that it reflected Hinman’s personal views, the SEC cannot now reject its own position.”
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