Questions Mount over Alleged SEC Conflicts of Interest in Ripple Crypto Case

Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), speaks during a House Appropriation Subcommittee hearing in Washington, D.C., US, on Wednesday, May 18, 2022. The hearing is titled "Fiscal Year 2023 Budget Request for the Federal Trade Commission and the Securities and Exchange Commission." Photographer: Al Drago/Bloomberg
Al Drago/Bloomberg

Pressure is mounting on the Securities and Exchange Commission (SEC) over an alleged conflict of interest involving a member of the agency and Ether, the cryptocurrency of the Ethereum blockchain.

Empower Oversight, a nonpartisan nonprofit, is calling for an investigation into ethics failures at the SEC after records emerged alleging one of its former employees, William Hinman, had a direct financial interest in a law firm with a financial interest in the value of Ether, Simpson Thacher, while working at the SEC.

The allegations are central to an ongoing lawsuit between the SEC and Ripple Labs, the company behind the Ripple cryptocurrency.

In December 2020, the SEC filed a lawsuit against Ripple, alleging it is an unregistered security. At the same time, Hinman indicated that Ether, which Ripple competes with, is not a security.

If the SEC designates a cryptocurrency as a security, that typically has a negative impact on its price, and Ripple’s price immediately crashed after the SEC announced its legal action, falling from $0.45 on the day of the announcement to $0.25 a day later. By the end of the month, Ripple’s price was $0.22 — half of what it was before the SEC announced its lawsuit.

Via Empower Oversight:

In contrast to the instructions from the SEC’s Ethics Office, the records disclosed to Empower Oversight and other information tend to show that Mr. Hinman failed to disclose Simpson Thacher’s—and by extension his—direct financial interest in the Enterprise Ethereum Alliance, which describes itself as an “industry organization whose objective is to drive the use of Enterprise Ethereum” and its cryptocurrency, Ether, during a speech he gave during his tenure at the SEC. In his speech, he opined that Ether is not a security, stating that “based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.” Ether’s value rose immediately after Mr. Hinman’s speech.

Hinman’s role at the SEC is an important element of a lawsuit brought against the SEC by Ripple (XRP), a cryptocurrency that competes with Ether and was categorized as a security by the SEC.

In a letter to the SEC, Sen. Mike Capo (R-ID) has expressed concern about the role that conflicts of interest may have played in its decisions.

From the letter:

This claim is particularly grave in light of the SEC’s ongoing lawsuit against Ripple Labs Inc. ( SEC vs. Ripple ).

On December 22, 2020, the SEC announced that it filed an action against Ripple, one of Ethereum’s rivals, and two of its executives, claiming that Ripple raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.

I agree that innovations such as cryptocurrencies are inevitable and beneficial, and that the U.S. should lead in their development.

As virtual currencies become a larger part of our trading marketplace it is important that regulations keep pace in order to foster this technology while maintaining just and equitable standards and ensuring full transparency.

I will continue to work with my colleagues and the Administration to develop established practices for the use of cryptocurrencies.

Empower Oversight has requested that the SEC’s office of the inspector general, which investigates ethics violations at the agency, launch an investigation into the alleged oversight failure.

Allum Bokhari is the senior technology correspondent at Breitbart News. He is the author of #DELETED: Big Tech’s Battle to Erase the Trump Movement and Steal The Election.


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