Is Ether a security? Why Ethereum might not be out of the water

By Steven Msoh. August 17, 2021. (Crypto News Flash).

Is Ether a security? This is a question that has been asked for years now, but to date, there has been no affirmative answer. A simple question it may look like from a glance, but the implications might be worth over $350 billion and could collapse an entire industry, given that Ethereum underpins many of today’s cryptocurrency projects. And while most people – from experts to price speculators – have considered Ethereum as exempt from being deemed a security, recent developments are putting doubts about the token’s status.

Hinman clarity, and why we can’t depend on it today

To date, the clearest direction has been given by William Hinman, the former director of corporate finance at the U.S Securities and Exchange Commission. Hinman was speaking at the Yahoo All Markets Summit in San Francisco in June 2018 when he made the clearest remarks yet as to whether the watchdog considers Ether a security.

Putting aside the fundraising that accompanied the creation of Ether, 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.

Of course, Hinman also cleared Bitcoin from being a security. However, BTC and ETH were created and sold in different ways, making each coin’s case unique.

Read the Full Article Here.

When We Face the Government, the Crypto Community Must Unify and Rise

By John E. Deaton, Founder and Host, CryptoLaw.

The apparent defeat over the crypto tax reporting measure in the infrastructure bill was a vivid warning.  The U.S. government doesn’t know what it’s doing on crypto, but it’s taking action anyway.  A $2 trillion economic sector is too ripe a target for a government that has spent the last decade ignoring its extraordinary birth and expansion around the globe.  But their ignorance to the potential of these technologies has become dangerous, and no digital asset is safe anymore.

From Bitcoin Maxis to the XRP Army, there finally was a realization that we’re all in danger without a clear regulatory framework, one which puts guard rails around the regulators just as much as it does around the scammers and the criminals. I’ve said it over and over since last year – the SEC v. Ripple case is the most impactful SEC enforcement action in a generation because the agency is coming after all of us, not just XRP. They made a mockery of standards for due process and fair notice and erased $15 billion in value for the investors they said they were protecting in a case that had no allegations of fraud. Many in the XRP Army express resentment towards Ethereum because of the notorious William Hinman speech on Ether in 2018. Hinman classified the 2018 speech as personal opinion and went on to claim that the SEC has never declared ETH not to be a security in a recently filed sworn affidavit.

As the case against Ripple drags on it’s becoming increasingly clear that the SEC is more than ready to come after ETH without any warning for its 2014 ICO. Regulators can give speeches in front of a room of 1,000 market participants giving their blessing to a digital asset and then slap a lawsuit on any company and any investor the very next day and laugh at you for thinking the speech meant anything as they issue subpoenas for your bank records. SEC Chairman Gary Gensler offers no coherent message on the assessment of existing clarity in crypto. Concurrently,  U.S. senators who claim to support democratization of global finance also claim to support a ban on decentralized finance in all its forms and want to tighten the centralized control of money.

Everyone in the U.S. crypto space needs to see the big picture, and it’s this: we have to get out of our crypto bubble and start ensuring that our voices are heard by elected Members of Congress in every state and every district. They must be given notice that starting immediately, and tomorrow, and next week, that the crypto community is not some anarchic fringe or group of “shadowy super-coders”. We are people from all walks of life who believe in this technology and how it will transform the economy for the better.  We use digital assets of all kinds for a variety of important uses. We get paid in these coins, and we buy groceries and pay bills with them. We are building companies that use them to allow banks, companies and everyday consumers move money around the world in an instant at almost no cost, with better security and transparency than the banks. We are also investors, of course, and we want laws against scammers and fraudsters. The crypto community is not involved in crime and terrorism – we are law enforcement’s best allies in catching those people and bringing them to justice. We are that first group of true believers that every huge innovation needs to get off the drawing board and into the mainstream economy, sharpening all the benefits and working through all the bugs, building markets for how to use it and build on it.

That is the reality of our community that has been missing for the last decade in Washington, and it’s the only thing that is going to turn our situation around there. A million screaming tweets of incoherent anger are worth less than one sincere conversation with your elected representative about what crypto means to you, how you use it and what you need from them. It isn’t partisan, it isn’t ideological and it isn’t even complicated when it comes down to you and your story. 

A community as big as ours, built around decentralized technology, should know it can’t rely on a handful of lobbyists or a group of influencers.  We need to get to work today, and every day forward. I don’t care which coin you favor or which crypto “tribe” you’re in – everyone needs to do this.

The first action you should consider is to find your House member and your two Senators on Twitter, and tweet at them that you are a constituent and crypto is important to you. Then tomorrow, if you really want to scare them, call the U.S. Capitol switchboard at (202) 224-3121 and ask to be connected to their office. When they answer, very calmly tell them your name, that you’re a constituent, and you need to talk to someone about crypto and why it’s important to you. Those Members of Congress may seem like they don’t do much, but every one of them employs people whose only job is to listen to you if you’re from their district or state. They are usually very nice, thoughtful people who have those jobs. They have to listen to you. If you’re not a U.S. citizen, then take your story directly to U.S. officials on social media or call the U.S. embassy in your country. The actions they are taking are impacting all of us, everywhere. They need to hear it and understand it.

In the end, if they don’t understand who we are and what this community is about, they will continue to blunder their way through screwing up one of the greatest economic innovations in history and opening the door for the truly shadowy figures of global finance to crush it and all the good it will bring to billions of people.

The SEC’s Fair Notice Farce, Starring William Hinman

By Roslyn Layton. July 19, 2021. (Forbes)

Covering the U.S. Securities and Exchange Commission’s (SEC) ill-conceived enforcement action against Ripple Labs is never dull, and last week offered another development in the case. When the agency accused the San Francisco-based software company of seven years of unregistered securities trades by its distribution of the XRP digital currency, it unwittingly opened the door to replacing the SEC’s antiquated Howey Test for defining securities. Moreover, it appears that the judge agrees with the defense’s argument that the SEC failed to provide fair notice to Ripple (or any market participant) that XRP was, in the agency’s view, a security since 2013.

Throughout the pre-trial phase of the case, Ripple’s legal team has demonstrated that the SEC denied fair notice not just on XRP, but cryptocurrencies in general. When Ripple filed an intention to present a fair notice defense, the SEC launched a series of desperate filings to stop Ripple, knowing that if that defense is permitted, the trial case against Ripple will be dead on arrival.

Read the Full Article Here.

The Hinman Deposition: A Review of What We Deserve to Know

By John E. Deaton, Founder and Host, CryptoLaw.

Tomorrow (Thursday 7/15), Magistrate Judge Sarah Netburn is scheduled to hold hearing to discuss whether to grant the SEC’s motion to quash the deposition of former SEC Division of Corporation Finance Director, William Hinman. The judge may even issue an order on this pivotal matter during tomorrow’s hearing.

In its motion to quash the deposition and prevent Hinman from testifying under oath, the agency argued that Ripple, and executives Brad Garlinghouse and Chris Larsen could not demonstrate the “exceptional circumstances” needed to order the testimony of a high-ranking government official. However, an examination of the facts tell a very different story. For starters, Hinman is no longer a high-ranking government official. He is a private citizen. Surely, after investing millions of dollars in Hinman while he was serving at the SEC, Simpson Thacher would give him adequate time off to answer some questions.

Here is a quick, but not exhaustive, review of what XRP holders and crypto holders and investors in general deserve to know should William Hinman be permitted to testify under oath:

  1. Ethereum, Simpson Thacher and Millions of Dollars in His Bank Account: Before and after his tenure at the SEC, Hinman has been a partner at the law firm of Simpson Thacher, which sits on the Enterprise Ethereum Alliance, a coalition of organizations devoted to the business case for the Ethereum blockchain. In 2018, Hinman declared, “offers and sales of ether are not securities transactions” in a speech that is still available on the SEC’s website, sending its value soaring. Hinman received millions in payments from the firm while he was at the SEC, including when he prepared and delivered those remarks. If that was not a clear conflict of interest, then he needs to explain why under oath. According to the documented evidence, Hinman’s personal financial interests were clearly connected to that speech he gave.
  • Hinman’s ETH Speech and the Coinbase Listing of Ethereum Classic: Three days before the pivotal Hinman speech on ether in 2018, Coinbase announced the listing of Ethereum Classic on its exchange, an asset forked from the Ethereum blockchain that was widely anticipated to be declared a security, like ether itself.  (Ether was launched in an ICO in 2014, after all.) This immediately raised questions at the time among analysts about whether the SEC had privately given advance notice to Coinbase or the Ethereum Foundation of what Hinman was about to announce. Did the SEC tip off Hinman’s Simpson Thacher colleagues before the market got his speech? Let’s hear his answers under oath.
  • Hinman’s Meeting with the Ethereum Foundation After the ETH Speech: In the discovery phase, Ripple has apparently forced Hinman to admit he met with the Ethereum Foundation, Consensys and other very relevant market participants after his 2018 ETH speech. (The redactions in the July 1 filing don’t confirm it but the rest of the filing strongly points in that direction.) Why didn’t the market know about this before now? Did the man in charge of no action letters on cryptocurrency offerings discuss his ETH speech in private with these key market participants? Did they discuss rival coins? Let’s have him walk us through all of those conversations under oath.
  • And About the Whole “Just a Personal Opinion and Not Policy” Nonsense: Everything about the behavior of Hinman and the SEC before, during and after that infamous ETH speech clearly indicated that they knew the speech would move markets. The headlines in major business dailies clearly indicated that a senior SEC official was declaring that ETH is not a security. Hinman never personally corrected the record in any interview with the media or public appearance that I could find, nor did the actions of Coinbase three days before the speech or Hinman’s communications with market participants after the speech point to anything other than a policy statement from the official in charge of no action letters for the SEC. Later in 2018, he very clearly said in a Georgetown University School of Law speech that his ETH speech “got a lot of attention because it was the first time we had expressed to the world that we didn’t view ether as a security.” There was no disclaimer from him at Georgetown that “we” meant William Hinman. “We” meant the SEC, pure and simple. Hinman needs to be questioned under oath extensively about all the events leading up to the ETH speech – and afterward – to clearly paint a believable picture as to how this market-shaking speech was just his opinion as a private citizen.

It’s laughable that, in their desperate effort to shield Hinman from being deposed, the SEC claimed that Hinman “does not have unique first-hand knowledge of “what was going on in the [Crypto] market.” However, these selected facts alone get to the heart of Hinman’s pivotal role in giving Ethereum the rocket fuel for its token’s trip to the moon, while he was personally collecting millions of dollars from an Ethereum-connected law firm. He and/or the SEC may have given notice to an exchange about his ETH speech in advance, while other market participants were in the dark. And now both Hinman and the SEC want us to believe the ETH speech should never have been interpreted as policy or any kind of notice about ETH’s status, in the same way that the SEC argued in the Ripple complaint in December 2020 that all of us should have known XRP was a security since 2013.

A deposition in federal court is limited to seven hours. Government documents indicate Hinman received over $15 million in payments from Simpson Thacher over the four years he worked at the SEC:

Investors lost over $15 billion in the wake of the SEC’s complaint against Ripple. Is a seven hour deposition too much to ask? Apparently, Hinman and the SEC, whose very mission is to protect investors, seem think so.

It is a big deal to subpoena a former high-ranking official for a deposition in order to answer for his actions while in office.  Judge Netburn is not taking this question lightly. But when those actions were so clearly material to the central questions at dispute in a case as big and precedent-setting as SEC v. Ripple, it’s a damn good reason to reject the SEC’s attempts to shade Hinman and prevent the whole truth from coming to light.

Was there corrupt intent at the SEC?

By John E. Deaton, Founder and Host of CryptoLaw.

You would think that blatant government corruption and self-dealing was the stuff of a Hollywood movie, but when you peel back the layers of the Ripple case, examine its origins, and review key facts related to some of its central figures at the Securities and Exchange Commission, a larger story emerges that can’t be ignored.

Former Chairman Jay Clayton, ex-Corporation Finance Director William Hinman, and former Enforcement Director Marc Berger took very specific actions while they were in office, related to very specific cryptocurrencies. In parallel, they have very specific financial interests related to cryptocurrencies, which were benefited by those actions, while millions of retail holders of a specific cryptocurrency were directly harmed. 

Those are the indisputable facts, and taken together they point very clearly to something very troubling behind the SEC’s filing of the Ripple case on Clayton’s last day in office. How can we look at these facts and just dismiss the idea of corrupt intent? 

Here is what we know, in detail:

  • Before joining the SEC, we know that both Clayton and Hinman earned massive fees to support Chinese tech giant Alibaba Group carry out its 2014 IPO on the New York Stock Exchange. Alibaba’s Alipay is the largest digital mobile payments platform in the world, and its New York IPO set the stage for China’s intended dominance in global digital payments.
  • By 2016, Chinese-controlled bitcoin miners had moved to control 65% of the bitcoin network hash rate.  Since bitcoin is a proof-of-work token, this gives China control of its network.
  • On May 9, 2017, William Hinman was named the Director of Division of Corporation Finance at the SEC. Upon his appointment to the SEC, Hinman left his post at the law firm Simpson Thacher – which sits on the Enterprise Ethereum Alliance and represents cryptocurrency-related financial interests – but continued to receive millions in financial payments from the firm.  In short, Hinman had a clear financial interest in any regulatory action by the SEC related to cryptocurrencies – while he was serving in a top SEC position!  This was something one former SEC ethics lawyer said was “a little unsettling.” (A little?) 
  • In 2018, Clayton publicly declared bitcoin not a security, sending the price of bitcoin soaring.
  • During a 2018 Yahoo Finance summit in San Francisco, Hinman declared that the Ethereum token, ether, is not a security.  The price of ether skyrocketed.
  • In 2019, Simpson Thacher led Chinese-based crypto mining company Canaan to their IPO. Canaan provides the technology used for mining bitcoin, and is publicly bullish on Bitcoin.  Hinman was still at the SEC when this happened, and still collecting checks from Simpson Thacher.
  • In early November 2020, then-Director of National Intelligence John Ratcliffe wrote Chairman Clayton to express his growing concerns over China’s dominance in crypto and the risk it poses for U.S. national security.
  • On December 4, 2020, Hinman resigned from the SEC.
  • On December 22, 2020 – Clayton’s last day in office – the SEC Enforcement division led by Berger filed its lawsuit against Ripple and its executives alleging that XRP sales over seven years were unregistered securities trades.  The complaint indicates “all sales” were illegal, therefore ensnaring millions of retail XRP holders who have never heard of Ripple but traded the digital currency for years.  The price of XRP plummeted.
  • On January 12, 2021, Acting Enforcement Director Marc Berger announced his resignation from the SEC, departing the agency at the end of the month.
  • As of March 2021, the People’s Bank of China (PBOC) had edged closer to the full-scale launch of their Digital Yuan, releasing millions of dollars of the digital currency in trials.
  • On March 29, 2021, Bloomberg reported that Clayton had accepted a position at One River Asset Management, a digital asset hedge fund focused exclusively on bitcoin and ether.
  • In its case against Ripple, SEC attorneys have been fighting tooth and nail not to adhere to the One River Asset Management subpoena, more than likely in an attempt to keep potentially incriminating evidence about Clayton’s compensation from coming to light.  
  • On April 15, 2021, Bloomberg reported that Berger was joining Hinman as a partner at Simpson Thacher.

Neither Clayton, nor Hinman, nor Berger, nor the SEC have disputed any of these facts or the chronology of how this all unfolded.  Any objective reading clearly suggests that these three had and/or currently retain financial interests linked to the officials’ actions they took at the SEC. 

Why haven’t these individuals, Simpson Thacher and One River been challenged to explain these facts? 

These facts suggest glaring improprieties, so why aren’t they being investigated? Given  cryptocurrencies total market capitalization swelling into trillions of dollars, if now is not the time to investigate, then when?

It is up to the millions of retail XRP holders, who were directly impacted by these actions, to demand answers if no one else will.

Former SEC Director who led Ripple action lands new role at Ethereum law firm

By Samuel Wan. April 17, 2021. (CryptoSlate).

Ex-Acting Director of the Division of Enforcement, will join Simpson Thacher, a member of the Enterprise Ethereum Alliance, later this year. This leads some to ask whether a conflict of interest took place in the SEC granting Ethereum’s non-securities status.

According to news outlet Bloomberg, Marc Berger, who stepped down from his role at the US Securities and Exchange Commission (SEC) in January, will join New York-based Simpson Thacher in June. Berger was instrumental in bringing legal action against Ripple on allegations of selling an unregistered security in the XRP token.

A key point throughout the hearing process has been the SEC’s nod of approval towards both Bitcoin and Ethereum, which they deem as not securities. Questions are now being asked following Berger’s appointment at a member firm of the Enterprise Ethereum Alliance.

Read the Full Story Here.

Buterin’s ETH sales more like a security offering than Ripple’s XRP sales: John Deaton

By Jake Simmons. March 24, 2021. (Crypto News Flash)

Attorney John E. Deaton continues to fight for the XRP community, seeking arguments as to why the U.S. Securities and Exchange Commission (SEC) is wrong in classifying XRP as a security. In a Twitter thread yesterday, Deaton laid out why the Ethereum Foundation’s sales of Ether (ETH) met the facts for a security much more than any sales of XRP by Ripple that he is aware of.

In doing so, Deaton specifically referenced a video shared by “Digital Asset Investor” via Twitter in which Ethereum’s creator, Vitalik Buterin, spoke about the initial fundraising and transfer of 500,000 ETH to Galaxy Digital’s Mike Novogratz. Deaton explained:

What @VitalikButerin is doing in the below video is much more of an “offering” of a security than any specific sale of #XRP that I’m aware of – (although I’m not aware of all #XRP sales).

Read the Full Story Here.