SEC In a Difficult Position as Hinman Docs Are Unsealed

The long-awaited Hinman documents were unsealed and revealed to the public on June 13. The documents provide insight into William Hinman’s speech which stated that Ether is not a security.

The highly anticipated Hinman documents were unsealed and released to the public earlier this week.

The documents contain internal communications within the SEC, which provide much-needed insight into William Hinman’s, the former director of the SEC’s corporate finance division, 2018 speech in which he claimed that Ether (ETH) should not be categorized as a security.

Hinman famously said during his speech:

Based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.

In the now publicly available internal communications, Hinman said:

Attached please find a draft of the speech I had mentioned, which suggests that we don’t need to see a need to regulate Ether, as it is currently offered, as a security.

According to the documents, Hinman also did not regard Bitcoin as a security either:

Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.

Ripple’s Interest in the Hinman Docs

Although the documents do not directly pertain to Ripple, the firm believes they are instrumental in proving its case that XRP is not a security. Ripple has been embroiled in a legal battle with the SEC since 2020, when the agency asserted that Ripple sold $1.3 billion worth of XRP as unregistered securities.

Ripple’s argument rests on the speech indicating that the regulator does not believe ETH or BTC to be securities and argues that XRP should also not be deemed a security.

The SEC was hesitant to hand over the documents but was ordered to do so by Judge Analisa Torres in September. The agency consequently tried to keep the records sealed by arguing that they were irrelevant to the case but was again denied by Judge Torres, who ruled they should be made available to the public.

Legal Experts Weigh In

Ripple’s Chief Legal Officer, Stuart Alderoty, commented on the documents in a recent Twitter thread.

Alderoty says the discovery reveal that Hinman ignored multiple warnings from collogues who suggested that the speech could create possible confusion in the market.

2/ We now can all see Hinman ignored multiple warnings that his speech contained made-up analysis with no basis in law, was divorced from the Howey factors, exposed regulatory gaps, and would create not just confusion, but “greater confusion” in the market.

— Stuart Alderoty (@s_alderoty) June 13, 2023

Alderoty also questioned why Hinman went ahead with the speech despite numerous warnings. 

13/An investigation must be conducted to understand what or who influenced Hinman, why conflicts (or, at the very least, appearances of conflicts) were ignored, and why the SEC touted the speech knowing that it would create “greater confusion.”

— Stuart Alderoty (@s_alderoty) June 13, 2023

Crypto lawyer John Deaton further offered insights into the communications. Deaton said in a tweet quoting Coinbase legal officer Paul Grewal that the emails indicate how “hypocritical and reckless the SEC is being.” 

The Hinman emails help @coinbase, #ETH and @Ripple’s fair notice defense. How much it helps anyone in a courtroom is yet to be seen. But in the Court of Public Opinion and in Congress, the emails should help drive attention to how hypocritical and reckless the SEC is being. https://t.co/kdYOSsh2RX

— John E Deaton (@JohnEDeaton1) June 13, 2023

Deaton gave an interview to the news agency Cointelegraph, where he said the documents provide support for not just Ripple but for Coinbase and other entities that have been facing “unjust targeting by regulators.” He further opines that the documents could potentially shape legislative discussions in Congress.

Deaton is quoted as saying:

“The documents are what I expected in two ways. One, it helps Ripple, Coinbase, and others being unfairly targeted by regulators playing fast and loose with the law they took an oath to uphold. How much it helps in the courtroom is yet to be seen, but it certainly helps in the court of public opinion and in the halls of Congress.

Two, it highlights the massive conflicts of interests and gross appearances of impropriety by William Hinman and Jay Clayton.”

The document’s release comes at a critical time for the crypto industry. The SEC served two of the largest crypto exchanges last week with allegations of securities violations triggering a market spiral.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.