Hinman document unsealed: Ethereum does not need to be regulated as a securities, the overall case is favorable to Ripple

Author: BitpushNews Mary Liu

On June 13, 2023, documents related to a 2018 speech by former U.S. Securities and Exchange Commission (SEC) Division of Corporate Finance William Hinman (2017-2020) were unsealed, including numerous emails and annotated comments.

In his speech, Hinman argued that assets native to the Ethereum network do not need to be regulated as securities, a view often cited by Ripple Labs when rebutting the SEC’s allegations. According to newly released documents, multiple senior SEC officials made clear that Hinman's speech may cause confusion about how the United States classifies digital assets.

Some people in the industry believe that these documents do not provide conclusive evidence, but provide some new information that can help Ripple file a lawsuit against the SEC, which may be beneficial to Ripple as a whole.

Hinman document unsealed: Ethereum does not need to be regulated as a securities, the overall case is favorable to Ripple

Multiple SEC Officials Express Concern over Statement "Ethereum Is Not a Security"

Hinman said in a speech on June 14, 2018: "Leaving aside the fundraising that accompanied the birth of Ethereum, based on my understanding of the current state of Ethereum, the Ethereum network, and its decentralized structure, the current offer and sale of Ethereum is not constitute a securities transaction."

The released documents include email exchanges between Hinman and SEC staff in preparation for an upcoming speech, which show that SEC officials struggled with how the speech should convey the view that ethereum is not a security.

On June 12, 2018, Brett Redfearn, Director of Trading and Markets wrote: "As written, the language remains ambiguous as to whether ETH is a security. If you want to make an affirmative statement that it is not a security, The language could be stronger (i.e., say it directly). If you don't want to take an affirmative stance, we recommend that you use language similar to that used in the Bitcoin disclosure regime to make it more consistent".

Redfearn also said in a commentary on the proposed speech that some of it "seems like it might create more confusion about the status of ETH."

Valerie Szczepanik, the current head of the SEC FinHub group, wrote in an email on May 25, 2018 that she believes that "the less details the better," Szczepanik said: "This is introducing a concept that may cause a lot of discussion, so I think it's a good thing to have space for discussion."

Hinman document unsealed: Ethereum does not need to be regulated as a securities, the overall case is favorable to Ripple

This early version of the presentation did not mention Ethereum, although it did mention Bitcoin. “We don’t want to imply that BTC is a security,” the SEC official said.

Laura Jarsulic, an attorney for the SEC's Office of General Counsel, responded in an email on June 12: "Take reservations about including a statement about Ether directly in the speech ... as it would allow the agency to take ETH in the future." Different positions become difficult."

Both Redfearn and the Office of General Counsel argued that Hinman skipped the threshold question of whether the SEC had jurisdiction, warning that by creating this “other” category and focusing on information asymmetries, Hinman would expose regulatory gaps that the SEC may not have the authority to close.

Hinman document unsealed: Ethereum does not need to be regulated as a securities, the overall case is favorable to Ripple

Other officials copied on the email include former SEC enforcement chiefs Stephanie Avakian and Steven Peikin, former head of investment management Dalia Blass, former general counsel and acting head of trading and markets Heather Seidel, and others.

The emails also reveal that William Hinman planned to have a conversation with ethereum co-founder Vitalik Buterin in 2018, with the discussions aimed at "confirming our understanding of how the Ethereum Foundation operates."

How will it affect the case?

Bitui previously reported that in December 2020, the SEC filed a lawsuit against Ripple Labs, alleging that the company raised more than $1.3 billion through an unregistered digital asset securities offering and its cryptocurrency XRP. Ripple denies that XRP is a security, arguing that it does not satisfy the Howey test. And said that Hinman's remarks about ETH contradicted the SEC's statement that XRP is a security.

Later William Hinman became a key figure in the lawsuit, and Ripple has been seeking to disclose the documents since late 2021, and the new documents were released by order of the U.S. District Court for the Southern District of New York.

Ripple CEO Brad Garlinghouse, the lead defendant in the case, said ahead of the release of the documents that the wait was worth it. He tweeted in response to a post by crypto YouTuber Jungle Inc.: "Hopefully we can go deep now, but we've waited so long (18+ months) and I don't want to cross the line... Suffice it to say, Stuart Alderoty [Ripple's] Chief Legal Officer] and I believe these documents were worth the wait."

Stuart Alderoty, Ripple's chief legal officer, tweeted: "We can all now see that Hinman ignored multiple warnings that his speech contained fictitious analysis with no legal basis, divorced from Howey test factors, exposed regulatory loopholes, and would not only Create confusion and create 'greater chaos' in the market."

Ripple Labs wants to use Ethereum to defend its XRP technology, token sale. To borrow Hinman's phrase, if ethereum can become "sufficiently decentralized" over time — then XRP can also transform from a security to a commodity.

The SEC and Ripple are awaiting a summary judgment, which Ripple's legal team previously said could come before the end of the year. It is possible that a judge may rule that there is not enough evidence for summary judgment, that the case could go to trial, or that Ripple and the SEC may settle the lawsuit, although Ripple said this is an unlikely outcome.

Adam Cochran, founder of venture capital firm CEHV, commented that the documents "do not have much impact on the XRP case," but "the nuances put Gensler in trouble."

Gabriel Shapiro, Delphi Labs general counsel, called the emails "nothingburger" and did not reveal anything new to help Ripple's case. Shapiro tweeted: "If this helps Ripple's case, I will be happy Happy, but it's not the case."

Potential Impact on Encryption Classification

The public release of the Hinman filing could spark a major debate over the classification of cryptocurrencies as securities, especially at a challenging time for the industry. Most recently, the SEC filed lawsuits against cryptocurrency exchanges Coinbase and Binance, accusing them of selling unregistered securities. In legal action against Coinbase, the SEC said at least 13 crypto assets that Coinbase offers to customers are securities, including solana (SOL) and cardano (ADA).

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