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Hinman’s recently released documents relating to the ongoing legal battle between Ripple and the U.S. Securities and Exchange Commission have shed light on internal divisions within the SEC and raised questions about its motives.
The Hinman documents refer to internal SEC communications regarding former director William Hinman’s 2018 speech. During the speech, Hinman said that Ether (ETH), one of the largest cryptocurrencies, should not be classified as a security.
In an interview with Cointelegraph, cryptocurrency lawyer and founder of Hodl Law Fred Rispoli shared his thoughts on the recently released documents. According to Rispoli, the Hinman documents paint a picture of an agency more interested in expanding its jurisdiction than in fulfilling its core mission of protecting American investors:
“These documents are essentially bad for the SEC, but the optics are even more damaging. Taken together, they demonstrate that the SEC is clearly more concerned with expanding its scope than with its almost ninety-year-old mission to protect American investors. They show the spinning aspect of agency bureaucracy at its worst.”
He further explained: “For example, one of the unredacted documents demonstrates that the SEC’s Office of General Counsel has acknowledged that cryptocurrency likely falls into the ‘other’ category — it is not a security because there is no controlling group (at least in the sense of Howey )), however, as with many other things (drugs, credit cards), there may be a need for regulation to protect buyers.”
The “Howey test” is the legal basis established by the U.S. Supreme Court in SEC v. Howey in 1946 to determine whether a transaction qualifies as an investment contract and therefore falls under the definition of a security.
According to Rispoli, the main problem is that while cryptocurrencies may have certain security attributes, their fundamental characteristics set them apart from traditional securities. Therefore, regulation is necessary, but it should not be left solely to “power-hungry” securities regulators. He explained:
“Cryptocurrency may have some security attributes, but its other attributes fundamentally distinguish it from securities. Therefore, there is a need for regulation, but clearly not from the power-hungry SEC. The SEC also recognizes this and is struggling to protect and expand its jurisdiction even in the absence of Congressional authorization.”
The release of Hinman’s papers has opened a Pandora’s box with potential implications for Ripple and the cryptocurrency industry in general. According to Rispoli, “Now that these documents have been made public, it demonstrates that the rabbit hole goes much deeper, and more requests for documents will be issued soon, whether from other parties, congressional investigators, Freedom of Information Act requests, etc. . “
Rispoli suggests that additional documents may be requested that shed light on events surrounding Hinman’s speech, as well as highlighting the potential involvement of various organizations and individuals in shaping the narrative. This includes looking into reports from SEC officials about why Hinman ignored their recommendations to remove air from his speech. In addition, the content of communications between third parties, such as Vitalik Buterin and Hinman, may be requested through SEC email, personal email, and text messages about Hinman’s teaching on the Ethereum project.
Regarding how the published documents may affect other current or future legal battles in the cryptocurrency industry, Rispoli stated that “these documents will be useful for fair notice defense claims in the Dragonchain and Coinbase cases, and indeed in any case related to a token issued by on the Ethereum Network,” he added.
“They also help convince judges and juries on an intangible level that they instinctively dislike and distrust the SEC for its highly questionable practices that aim to deliberately make the regulatory framework for investing in cryptocurrencies more confusing. and indefinite.
Related: Hinman Papers Suggest SEC Is Wrong Agency to Manage Digital Assets, Crypto Lawyer Says
Rispoli concluded that his law firm Hodl Law filed a lawsuit against the SEC in federal court for the Southern District of California to find that Ethereum and the Ethereum network “are not securities under federal law.” The Securities and Exchange Commission attempted to close the case, arguing that it was not required to disclose its position to the public. However, Hodl Law intends to present Hinman’s papers to a judge to highlight the SEC’s alleged disregard for good faith and a departure from legal obligations.