Ethereum co-founder, Joe Lubin, speaks on EOS – an Ethereum competitor. He discusses how the “SEC recently gave the EOS project a slap on the wrist for its token sale.” He goes on to add that in spite of that the SEC would “shut down a sale structured like the EOS sale today before it could put up its first billboard.”
Jeff Pulver, Vice Chairman of Alchemist, says attorney Steven Nerayoff “is the one responsible for getting the letter that said that Ethereum is not a security”. This was one day before the Hinman speech.
The moderator who had just spoken with William Hinman about his speech has event organizers post the real-time trading price of ether, which was up significantly. “You see over there,” Serwer tells the audience. “That was after the comments by the SEC. Interesting market action there, right? Um…whoa!”
“News like this moves markets,” added Sonnenshein, the CEO of Grayscale Investments.
Kyle Samani of Multicoin Capital – of which Chris Dixon of Andreessen Horowitz was a Limited Partner – says he is shorting XRP “based on the SEC’s guidance … about ether not being a security, it’s quite clear to us that Ripple is a security.” He adds that Multicoin has “very high conviction” that it [Ripple] is a security, but they “do not know when that news will drop”.
Brett Redfearn, SEC Director of Division of Trading and Markets and former senior JP Morgan executive is confronted with market confusion over the SEC’s regulatory approach to crypto. Redfearn concedes that “when looking at these issues, that it’s not as obvious as you would think” and encourages “market participants” to interpret the Howey Test as a guide. Both Ripple and Coinbase later followed that guidance, and concluded that XRP was not a security under the Howey Test.
Redfearn is asked about whether XRP or ether are securities, and he replies that the public should expect “statements about one of those products forthcoming in the future providing more guidance”. This was 7 days before the Hinman speech.
Former SEC commissioner Robert Jackson discusses SEC’s position on securities laws in relation to cryptocurrencies, saying “we just put out some guidance on this.” He then points to Hinman’s Yahoo Finance Summit speech as guidance, saying “the most helpful thing I think, our director of corporation finance Bill Hinman gave a speech about a year and a half ago that describes this.”
On the same day as his speech at the Yahoo! Finance Summit, William Hinman explains to CNBC that “when we look at ether” — ‘we’ clearly meaning the SEC — “we don’t see a third party promoter where applying the disclosure regime would make a lot of sense.” He goes on to describe securities transactions made with tokens that, in fact, closely describe the Ethereum ICO of 2014, the promotion of ether by Vitalik Buterin, Joseph Lubin and the Ethereum Foundation, and ongoing promotion by Lubin’s company, ConsenSys.
Court documents in the Ripple case revealed that the SEC met with Lubin and ConsenSys several times before Hinman gave his speech, and the SEC is fighting the release of emails, meeting notes and drafts of the speech that would identify the extent of involvement in drafting the speech by the biggest holders of ether, the biggest investors in Ethereum and ConsenSys, and third party promoters of ether at the time of its ICO.
Two months after the Hinman speech, SEC Chairman Jay Clayton says that “Bill Hinman recently outlined the approach we take to evaluate whether a digital asset is a security.” He adds: “I encourage you to take a look at Bill’s speech which is available on our website.”
Steven Nerayoff says that Ethereum’s lawyers told him that they had an “illegal securities offering.” He then said that he “was charged with a very simple thing. Raise money, and not go to prison.”
He also says that he described his plan to frame ether as a good to former SEC chairman Joseph Grundfest who thought it was “brilliant” and that he “spoke to some folks at the SEC who actually loved the idea and thought it made a lot of sense.” He describes this as the genesis of “the concept of a ‘utility coin’.”
Jay Clayton says that “the area [of crypto] that is of particular interest to me … is the payment system. Our payment system is inefficient. Domestically it is inefficient. Internationally it is extremely inefficient. So if we don’t work and use technology to address those inefficiencies the market is going to do it for us.” One month later, Clayton’s SEC sued the highest profile market leader providing a solution – Ripple – at a time ConsenSys was moving to directly compete with Ripple.