On June 13, the long-awaited Hinman documents were finally unsealed and made public. The leaked documents offer valuable insight into a key speech delivered in 2018 by Bill Hinman, the former director of the corporate finance division of the U.S. Securities and Exchange Commission (SEC).
In this 2018 speech, Hinman shared his view that Ether (ETH), one of the biggest cryptocurrencies, should not be classified as a security. The Hinman Papers consist of internal communications within the SEC, providing a comprehensive view of the agency’s discussions and considerations before and after Hinman’s speech.
In light of the recent release of the documents, Cointelegraph reached out to John Deaton, a crypto attorney and founder of CryptoLaw, to shed some light on the importance of the documents.
In the interview, Deaton pointed out that the documents provide support for Ripple, Coinbase and other entities that have faced what he perceives as unfair targeting by regulators. Deaton suggested that these documents could not only influence public opinion, but also potentially shape legislative discussions in Congress, as they raise concerns about the conduct of regulators and the interpretation of existing laws.
In his words: “The documents are what I expected in two ways. First, it helps Ripple, Coinbase and others from being unfairly targeted by regulators playing fast and loose with the law they are sworn to uphold. How much it helps in the courtroom remains to be seen, but it certainly helps in the court of public opinion and in the halls of Congress. Second, it highlights the massive conflicts of interest and gross appearances of impropriety of William Hinman and Jay Clayton.
Clayton, an American attorney, previously served as Chairman of the SEC from May 4, 2017 to December 23, 2020.
Regarding the specific impact on the ongoing legal battle between Ripple and the SEC, Deaton noted that “the documents themselves do not impact the judge’s underlying analysis of whether XRP was offered/sold by Ripple as an investment contract, or XRP’s secondary status.” markets in the United States. However, they reinforce Ripple’s argument that Hinman’s speech caused confusion in the market and hindered market participants’ ability to understand what was prohibited by applicable regulations. He shared:
“The documents help Ripple (and others) argue that the speech caused further confusion in the markets, resulting in market participants not being sufficiently informed of what was prohibited by the applicable law.”
Deaton further highlighted the potential consequences of the documents for Ether and ERC-20 tokens. He suggested that the documents could strengthen Ether’s position by reducing the likelihood of it being classified as a security by the SEC. He explained:
“I think the speech papers are good for Ethereum to be SEC-qualified as a security. It could also help ERC-20 tokens like Dragonchain because these tokens are governed by the Ethereum blockchain and if the SEC asserts that the network is decentralized enough, then these tokens even have a better fair notification argument than Ripple.
In response to the documents’ global implications, Deaton expressed his belief that they underscore the need for Congress to step in and clarify the governance of digital assets. He suggested that the SEC may not be the appropriate agency to oversee the crypto industry, given the apparent conflicts of interest and irregularities highlighted by the documents. He shared:
“I think the documents advance the call for Congress to step in and clarify and that the SEC is the wrong agency to govern digital assets.”
Finally, Deaton called for an inspector general investigation into why Hinman insisted on giving the speech despite warnings from the SEC General Counsel’s Office and the Director of Commercial Markets. Deaton pointed out that Hinman called the speech “ether talk,” raising more questions about potential biases and motivations. He noted:
“I believe the documents are a call for an investigation by the IG into why William Hinman insisted on the speech. The Office of the General Counsel warned against giving Ether a pass and the Director of Trade Markets specifically said the speech would lead to “further confusion in the market.” But Hinman was determined to give it. In his email, he called the speech itself the “ether speech.”
Deaton isn’t the only professional to believe there should be an investigation. Ripple’s Chief Legal Officer Stuart Alderoty echoed similar sentiments on his Twitter account. He called for an investigation 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’.”
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 it would create “greater confusion”.
— Stuart Alderoty (@s_alderoty) June 13, 2023
Related: Ripple Files Final Submission Against SEC As Landmark Case Comes to an End
The publication of these documents sparked discussions about the role of regulators, the clarity of existing laws, and the need for oversight in the rapidly changing crypto industry. As the legal battle between Ripple and the SEC continues, the contents of these documents may have broader implications for the regulatory landscape and market participants.
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