Why is the SEC so intent on blocking testimony from Hinman in the Ripple lawsuit?

As you may be aware, the Ripple lawsuit shows little signs of ending anytime soon. While there are many reasons why the case is complicated, one aspect has become notable recently. This is the US Securities and Exchange Commission’s (SEC) firm insistence that William Hinman cannot be allowed to testify in the lawsuit. But, why is Hinman so important and why is the SEC so adamant in their position. Let’s take a look at the relevance this has to the wide case.

Who is William Hinman?

Ripple Labs and its co-founders set a deposition for William Hinman for the 19th of July. But, who is William Hinman and why has he become such an important figure in this case? The answer is that Mr Hinman was the person who originally ruled that Bitcoin and Ethereum were not securities in 2018, despite the latter having an Initial Coin Offering (ICO). He was SEC corporate director at the time, however, since then he has returned to the law firm Simpson Thatcher that is connected to Ethereum Enterprise Alliance which could cause a conflict of interest.

The SEC’s Argument

His words could be relevant in this case for arguing that Ripple is not a security. However, the SEC has labelled his words as no ‘official determination’ and therefore not relevant to the case. Hinman’s speech in 2018 was not an official regulatory ruling and Ripple is not arguing against that. However, they pointed out that his comments moved cryptocurrency markets and that his opinion could be regarded as ‘authoritative’. They pointed to his ‘unique first-hand knowledge’ about the regulation of cryptocurrencies.

The SEC has stated that this argument is ironic because if he was a high ranking official, then it would require ‘exceptional circumstances’ for him to testify. SEC attorney, Ladan Stewart stated, “Defendants cannot point to a single case where the deposition of an SEC official of Director Hinman’s rank was allowed.” The SEC has also argued that Ripple would not be able to get detailed information from him that isn’t already available from the commission’s record of internal communication related to his speech.

Mounting Pressure for Regulatory Clarity

The ongoing case has added pressure for further regulatory clarity on the two largest cryptocurrencies, Ethereum and Bitcoin. With regards to Bitcoin, Attorney and expert in the case, Jeremy Hogan stated, “So, it could be argued if the SEC had some inkling that the price of Bitcoin was being manipulated or pumped up by a large holder or group of holders, that it could argue that there was a common enterprise there and sales by the group were in effect an investment contract – a sale of a security. It’d be a stretch but that would be the argument”.

With regards to Ethereum, Hogan stated, “So, Ethereum has some serious problems with its initial fundraising which, although not called an Initial Coin Offering, sure does look like one”. The Ethereum 2.0 upgrade is set to change Ethereum from the proof of work model to proof of stake. The SEC could potentially push for Ethereum to be classified as security with these new changes. Senator Elizabeth Warren has called out the SEC due to the lack of regulation on crypto exchanges. She has warned that Congress may need to take additional action. She gave a statement warning that “These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets”. She went on to say, “The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps and ensure that every investor has access to a safe cryptocurrency marketplace.” It remains to be seen what effect her words may have on potential regulation.

Closing Thoughts

You should now have a clearer idea of why William Hinman is a key figure in this case and the SEC’s reasoning for blocking his testimony. We will keep you updated as the case progresses and if the outcome could have major implications for cryptocurrencies as a whole. When will the lawsuit end? We appear no closer to getting a definitive answer.

 

The article contains market commentary information, it should not be regarded as investment research or investment advice. Past performance is not a reliable indicator for the future.

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