Newly released Hinman documents related to the ongoing legal battle between Ripple and the US Securities and Exchange Commission (SEC) reveal divisions within the SEC and call into question its motives.
The Hinman filing concerns internal SEC communications involving a 2018 speech by former director William Hinman. In his speech, Hinman said that Ether, one of the largest cryptocurrencies, should not be classified as a security.
Crypto lawyer and Hodl Law founder Fred Rispoli shared his thoughts on the recently released documents. According to Rispoli, the Hinman document paints a picture of an agency more interested in expanding its jurisdiction than fulfilling its primary mission of protecting US investors: “These filings are Materially bad for the SEC, but optically more damaging. Taken together, they show that the SEC is clearly more concerned with expanding its turf than protecting American investors for nearly 90 years.” Mission. They demonstrate the worst revolving door aspects of the institution national bureaucracy. "
He further explained: “For example, an unredacted document shows that the SEC's Office of General Counsel admitted that a cryptocurrency may fall into the category of 'Other' – it is not a security because there is no control group (at least in Howey's meaning ), however, like many other things (drugs, credit cards), regulation may be needed to protect buyers.”
The "Howey Test" is the legal framework established by the US Supreme Court in SEC v. Howey in 1946 to determine whether a transaction qualifies as an investment contract and therefore falls within the definition of a security.
According to Rispoli, the core issue is that while cryptocurrencies may have certain security properties, their fundamental characteristics set them apart from traditional securities. Therefore, regulation is necessary, but should not be entirely entrusted to "power-hungry" secu rites regulators. He explained : “Cryptocurrency may have some security properties, but it has other properties that make it fundamentally different from securities. Regulation, therefore, is required, but clearly not from the power-hungry SEC. The SEC recognizes this, even in the absence of Congress is also scrambling to protect and expand its jurisdiction.”
The release of the Hinman documents opens a Pandora's box of potential ramifications for Ripple and the broader crypto industry. According to Rispoli, "The fact that these documents are now public shows that the rabbit hole is getting deeper and further document requests will be issued so on , whether from other litigants, congressional investigators, FOIA requests, etc."
Rispoli speculates that additional documents may be requested to shed light on the events surrounding Hinman's speech, highlighting the possible involvement of various entities and individuals in shaping the narrative. This included exploring communications from SEC staff about why Hinman ignored their suggestion to exclude Ether from his presentation. Additionally, the content of communications between Vitalik Buterin and third parties such as Hinman can be requested via SEC emails, private emails, and texts about directing Hinman to describe the Ethereum project. Regarding how the released documents could affect other ongoing or future legal battles within the crypto industry, Rispoli said, “These documents will aid in the fair notice defense in the Dragonchain and Coinbase cases, as well as any involvement in the Ethereum network,” he added.:
“They also helped convince judges and juries on an invisible level that they instinctively loathe and distrust the SEC for its highly questionable practices that seek to deliberately make the regulatory framework for cryptocurrency investments more confusing and uncertain.” Rispoli concluded that his law firm, Hodl Law, sued the SEC in the U.S. District Court for the Southern District of California to prove that Ether and the ethereum network “are not securities under federal law.” The SEC tried to dismiss the case, arguing that it was under no obligation to disclose its position to the public. However, Hodl Law intends to present the Hinman filing to the judge to highlight the SEC's alleged disregard for good faith and breach of legal duty.
