Hinman documents in Ripple case raise questions about SEC’s motives

The Hinman Documents and Internal Disagreements Within the SEC

The newly released Hinman documents concerning the legal dispute between Ripple and the Securities and Exchange Commission (SEC) have revealed internal disagreements within the SEC and caused people to wonder about its intentions.

The documents concerning William Hinman, former director of the SEC, relate to internal communications regarding a speech he gave in 2018. During the address, Hinman declared that Ether (ETH), one of the most prominent cryptocurrencies, should not be classified as a security.

In an interview with Cointelegraph, Fred Rispoli, a crypto lawyer and founder of Hodl Law, expressed his opinion on the recently released documents. Rispoli suggested that the Hinman documents demonstrate the Securities and Exchange Commission’s (SEC) aim to extend its power rather than achieving its primary objective of safeguarding American investors.

He further elucidated: “For instance, one of the disclosed documents reveals that the SEC’s Office of General Counsel acknowledged that crypto probably falls into an ‘other’ classification – it’s not a security since there’s no controlling party (at least in the Howey sense), yet, like numerous other things (drugs, credit cards) there may be a requirement for regulation to protect buyers.”

The Howey Test and Crypto Regulation

The U.S. Supreme Court established the legal framework known as the “Howey test” in the 1946 case of SEC v. Howey, as a means of determining if a transaction should be considered an investment contract and thus be classified as a security.

Rispoli argued that, due to the distinct nature of cryptocurrencies compared to traditional securities, regulation is essential but should not be left only to “power-hungry” securities regulators. He went on to explain that the underlying issue is that while cryptocurrencies may have certain security characteristics, their fundamental qualities separate them from other securities.

Implications of the Hinman Documents and Hodl Law’s Court Case

The disclosure of the Hinman documents has unleashed a torrent of potential repercussions for Ripple and the crypto sector as a whole. As Rispoli commented, “These records being made public shows that the situation is much more extensive and further paperwork will be requested soon, whether from other litigants, Congressional investigators, FOIA requests, and so on.”

Rispoli surmises that further paperwork may be asked for that reveals more about the circumstances connected to Hinman’s address, as well as point to the possible involvement of different entities and persons in formulating the story. This could involve analyzing SEC personnel exchanges about why Hinman disregarded their suggestions to exclude Ether from his speech. Furthermore, the contents of interactions between third-parties, such as Vitalik Buterin and Hinman, via SEC email, personal email, and text about providing guidance to Hinman about describing the Ethereum project, could be requested.

Regarding the potential implications of the released documents on other legal disputes in the crypto sphere, Rispoli commented, “These documents could be utilized in the Dragonchain and Coinbase cases, and really any case related to tokens released on the Ethereum Network, for the fair notice defense.” He further stated:

A crypto lawyer has stated that, according to Hinman documents, the SEC is not the right agency to regulate digital assets.

Rispoli concluded that Hodl Law, his law firm, took the SEC to court in the U.S. District Court for the Southern District of California to establish that Ether and the Ethereum Network are not securities under federal law. The SEC has sought to have the case dismissed, contending that it is not required to make its position public. Nevertheless, Hodl Law plans to present the Hinman documents to the judge to demonstrate the SEC’s purported lack of good faith and its violation of legal obligations.

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