The SEC is facing tremendous pressure for its decision-making when it comes to enforcement of the digital asset space.
Empower Oversight, a nonprofit, nonpartisan educational organization dedicated to enhancing independent oversight of government and corporate wrongdoing, has submitted a FOIA (Freedom of Information Act) request to the Securities and Exchange Commission.
The FOIA request is seeking communications between SEC officials and their current and former employers amid the turbulent lawsuit against Ripple and its individual defendants.
“From May 2017 to December 2020, senior SEC official William Hinman reportedly participated in the SEC’s regulation of cryptocurrencies while receiving millions of dollars from his former employer, the law firm Simpson Thacher. Simpson Thacher is a part of the Enterprise Ethereum Alliance, an industry organization whose objective is to drive the use of Enterprise Ethereum. Hinman, while in his capacity at the SEC, declared that the Ethereum cryptocurrency, Ether, was not a security, causing its value to rise significantly”, said the official statement.
“Later, the SEC sued one of Ethereum’s competitors, Ripple, declaring its cryptocurrency, XRP, was a security. Shortly thereafter, XRP’s value plummeted 25%. After Hinman left the SEC in December of 2020, he returned to Simpson Thacher as a partner. The leader of the SEC division that brought the XRP lawsuit, Marc Berger, similarly left the SEC for Simpson Thacher.
“Additionally, there are potential concerns regarding former SEC Chairman Jay Clayton’s handling of cryptocurrency issues at SEC. As with Mr. Hinman and Ether, while at the SEC, Mr. Clayton declared that Bitcoin wasn’t a security, and its value rose. The SEC’s lawsuit against Ripple was filed at the end of Mr. Clayton’s tenure at the commission. Once he left the SEC, Mr. Clayton joined One River Asset Management, a cryptocurrency hedge fund exclusively focused on Bitcoin and Ether”, the nonprofit organization stated.
Empower Oversight is also asking whoever has first-hand information on the matter to disclose it and assist the organization with these inquiries.
SEC v. Ripple: SEC caught erasing documents relevant to XRP lawsuit
The organization is led by Founder and President Jason Foster, who helped Senator Grassley with the creation of the bipartisan Whistleblower Protection Caucus and the FBI Whistleblower Protection Enhancement Act of 2016 as well as the Inspector General Empowerment Act of 2016.
Other key figures within Empower Oversight are Dean Zerbe – who has successfully represented whistleblowers who have received to date awards totaling approximately $600 million dollars – and Gary Aguirre – who overcame retaliation for resisting his SEC supervisors’ demands to give a Wall Street banker preferential treatment due to the banker’s “political clout. The bank and CEO Pequot and CEO eventually settled with the SEC for $28 million in May 2010.
The SEC is facing tremendous pressure for its decision-making when it comes to enforcement of the digital asset space. The SEC v. Ripple case seems to have been the last straw as the industry is united in tackling the “regulation by enforcement” method.
Even two of its own Commissioners have come forward against the practice. SEC’s Hester Peirce and Elad Roisman have agreed to the lack of clarity and called for less enforcement actions and, instead, a clear regulatory framework for digital assets. The SEC dismissed the statement as being their personal views only.
A new regulatory framework may be around the corner as it was recently proposed in Congress and a law expert has already come stated XRP wouldn’t be subject to the SEC under the pending bill.
This week, it became known to the public that Ripple found the SEC tried to delete subtopics relevant to the lawsuit from the transcript. The erased part was William Hinman’s following statement:
“You call ten different law firms, they give you ten different answers, each of them has their own particular spin. It’s like the white light of your speech went through a prism and came out in ten different colors of legal advice.”
John Deaton, attorney for the XRP Holders who have filed a motion to intervene in the SEC v. Ripple, has been publicly stating that conflict of interest from SEC officials is likely since the beginning. In early January 2021, he shared his “personal gain” theory.
Prior to the William Hinman deposition, Mr. Deaton offered a line of inquiry that would put pressure on the ex-SEC official in regard to accusations of conflict of interest.