Hinman Investigation: The Chance for the SEC to Get Something Right

By John E. Deaton.

It didn’t just take a village. It took an army of activists, lawyers and everyday citizens to demand, insist and even sue the Securities and Exchange Commission to be transparent. From the moment William Hinman got on that stage in San Francisco on June 14, 2018, to declare that Ethereum’s native token, Ether, is not a security, something just didn’t seem right.

Indeed, that speech didn’t appear on Hinman’s official SEC calendar. The SEC has also forcefully refused under several chairman – including current Chairman Gary Gensler – to ever prejudge the status of a digital token with one very glaring exception: Hinman’s speech on Ether.

After six years, many lawsuits and tens of thousands of messages flooding into Washington, we learned today that the SEC Office of the Inspector General (OIG) is “in the final stages” of an investigation into the clear appearance of impropriety and conflicts of interest around Hinman’s speech and his many actions as SEC Director of Corporation Finance. My further understanding is that the investigation will delve into how the SEC ethics staff handled Hinman’s documented actions, or failed to.

It started with hundreds of internet sleuths working together in what I call decentralized justice. We discovered quickly that Hinman’s annual financial disclosures at the SEC showed he was receiving millions of dollars in payments from his old law firm, Simpson Thacher. We also learned that Simpson Thacher was a member of the Enterprise Ethereum Alliance, a group with the sole purpose of promoting Ethereum. Dozens of videos were located that had Hinman and other SEC officials, as well as key investors and stakeholders in Ethereum, saying in their own words what was happening in front of the cameras and behind the scenes around what Hinman called “the Ether speech”. I put them all together in a Video Library on the CryptoLaw website, and the evidence of possible conflicts of interest took shape.

At the same time, the excellent legal team defending Ripple, Brad Garlinghouse and Chris Larsen against the SEC’s lawsuit on the XRP digital token were locked in a long discovery fight over getting the internal emails and drafts of Hinman’s speech. That took years because the SEC fought so hard to hide the Hinman documents, defying so many court orders to produce them, that Magistrate Judge Sarah Netburn called them out for their lack of “faithful allegiance to the law.” As amicus counsel for 75,000 XRP holders in that case, I couldn’t agree more with Judge Netburn’s conclusion.

In August 2021, the government watchdog organization Empower Oversight jumped into the fight, with Freedom of Information Act requests and lawsuits when the SEC refused to comply. It took them years to force the SEC to produce the emails that proved how Hinman fought to receive million in payments from Simpson Thacher. They showed he was warned repeatedly he had a “criminal financial conflict” if he ever had any contact with that law firm, and he ignored them.

The Hinman emails obtained by Empower Oversight show he met over and over with Simpson Thacher, including with the head of their China office – Chris Lin – when his client had a pending IPO application before his division. The emails also showed direct contact between Joseph Lubin, one of the highest profile third party promoters of Ether, and Hinman before the 2018 speech.

In May 2022, Empower Oversight sent a referral of evidence about these conflicts to the SEC OIG. For almost two years, the group has been requesting internal communications about that referral and has been locked in litigation with the SEC to get compliance with those requests. That’s why today’s news confirming the OIG investigation is so important, and such a vindication for the thousands of people who have worked so hard to make this government agency transparent and compliant with the law.

I will not prejudge the SEC OIG’s investigation, nor should anyone else. They have pledged to give a redacted version of their final report to Empower Oversight, which means it will be made public for us to review ourselves.

But one thing is very clear. We must have our ethics rules followed by public officials like Hinman. When they are not followed, the law must be enforced. America is greatest when we have a level playing field and we allow the best technologies and innovations to compete fairly. And we must always stand up against gross government overreach.

This is the chance for the SEC to get something right for once. I hope the OIG issues a complete, fair and well-reasoned report which shows the kind of faithful allegiance to the law that the SEC Enforcement Division and Division of Corporation Finance have clearly failed to show to date.

CONFIRMED: SEC Inspector General in “Final Stages” of Investigation on Crypto Conflicts Referred by Empower Oversight

By Empower Oversight. February 15, 2024.

The Securities and Exchange Commission (SEC) has disclosed that its Office of Inspector General (OIG) is nearing the end of an investigation related to financial conflict of interest issues identified and referred to the OIG by Empower Oversight in May 2022. It’s the first acknowledgment of an open probe on the matter by the agency’s internal watchdog.

According to the SEC, “OIG has authorized us to inform you that OIG has an open investigation into the matter that they are in the final stages of completing.” Empower Oversight’s referral cited records it obtained through the Freedom of Information Act (FOIA) raising serious questions about the failures of SEC’s Ethics Office and a senior SEC official, William Hinman, to ensure that he avoided participating in matters where he had a financial interest—including a controversial speech declaring that certain digital assets were not securities subject to SEC enforcement.

Click here for the full article.

Ripple vs. SEC: 189 Page Hinman Calendar Revealed Covering His Entire Tenure

By Lele Jima. September 28, 2022. (The Crypto Basic)

Eleanor Terrett, a Fox Business journalist, shared some interesting information about the public calendar of SEC’s Bill Hinman, covering his entire tenure at the commission. 

“I have received a copy of Bill Hinman’s public calendar covering his entire tenure while at the @SECGov,” Terrett said.  

Some of the interesting details of Hinman’s public calendar include a series of meetings he had with Ethereum-related officials.

Hinman’s Meetings with Ethereum

According to Terrett, in the first two years of Hinman’s time in office, four meetings were scheduled with Ethereum blockchain software company ConsenSys and other officials related to the leading blockchain project.

On March 29, 2018, at 12:30 PM, Hinman had a scheduled meeting with ConsenSys and Amy Starr, an official of the SEC Corporation Finance.

A week later, the former SEC Corporation Finance director had a scheduled meeting with the title “ETH.” Another meeting dubbed “Ether” was also scheduled for Hinman on April 12, 2018, at 4:30 AM. On April 23, 2018, at 5 PM, Hinman had a scheduled meeting with Ethereum co-founder Joseph Lubin.

Read the full article here.

Former SEC director Hinman made millions from a pro-Ethereum firm during tenure

By Protos Staff. May 13, 2022. (Protos)

A Freedom of Information Act (FOIA) request by a whistleblower has revealed former Securities and Exchange Commission (SEC) director William Hinman was receiving millions of dollars in retirement benefits from a pro-Ethereum law firm during his tenure.

Hinman worked as the SEC’s corporate finance division chief from mid-2017 to late-2020. In June 2018, Hinman famously stated, “The Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions,” (our emphasis).

However, information obtained by Empower Oversight Whistleblowers & Research shows Hinman was receiving substantial retirement benefits from his previous employer at the time of his statement. Law firm Simpson Thatcher & Bartlett is a member of the Enterprise Ethereum Alliance, a group that supports Ethereum projects. Hinman returned to the entity after his time at the SEC, serving as a senior advisor.

Read full article here.

SEC Asked To Probe Ex-Official’s Crypto Statements

By Al Barbarino. May 10, 2022. (Law360)

A nonprofit watchdog asked the U.S. Securities and Exchange Commission to investigate its former corporate finance head, Bill Hinman, now a Simpson Thacher & Bartlett LLP senior adviser, claiming statements he made about cryptocurrencies while at the agency may have presented a conflict of interest. 

Empower Oversight Whistleblowers & Research claims Hinman didn’t follow instructions that the SEC’s ethics office gave him to avoid conflicts tied to his financial interests in Simpson Thacher, including the firm’s connection to the Enterprise Ethereum Alliance, or EEA, according to a letter the group sent Monday to the SEC’s Office of the Inspector General.

“Directives without compliance monitoring and sanctions for noncompliance are not meaningful; they are window dressings,” said Jason Foster, president of Empower Oversight, in an announcement about the letter.

Read the full article here.

SEC Chair Gensler’s War On Crypto Is About His Resume

By Roslyn Layton. October 29, 2021. (Forbes).

Securities and Exchange Commission (SEC) Chair Gary Gensler’s crusade against cryptocurrencies has surprised many. His three-year stint as a senior advisor at the Massachusetts Institute of Technology (MIT) Media Lab’s Digital Currency Initiative before leading the SEC suggested that he would bring an enlightened approach to crypto. No such luck.

Gensler’s foray into cryptocurrencies appears to be more a professional resume builder than a coherent regulatory vision for the innovation that can democratize finance. Along the way, he’s been happy to play along with the SEC’s word games on whether crypto is a currency or security, as long as it moves him to center stage. It’s part of the DC playbook: the regulatory white knight confirmed on the premise to make things right, implements some industry-friendly policy marketed as pro-consumer, and then takes the next plumb job.

Many misread Gensler. His MIT perch conferred the appearance of academic expertise on blockchain. It turns out there is little record of him writing or speaking about the technology until the school hired him in 2018. His few academic presentations were co-authored by the driving force of the school’s crypto program, Media Lab director Joichi Ito. Gensler’s MIT speeches and interviews were not about the substance of blockchain but rather commentary curated to make him look like a policy expert.

Read the Full Article Here.

Congress needs to step up on crypto, or Biden might crush it

By Former Rep. George Nethercutt (R-Wash.). October 16, 2021. (The Hill).

Recent developments both domestically and abroad have finally catalyzed the Biden administration to take the long-delayed step of engaging on the many regulatory issues surrounding cryptocurrencies and blockchain technology.

One of the most promising economic innovations since the internet, the market cap of cryptocurrencies is now over $2 trillion and there is a growing consensus that the technology is here to stay. What the industry needs — and the American economy would benefit from most — is a partner to help develop a comprehensive regulatory framework that would cement our country’s role as the leader in this emerging field.

Unfortunately, the Treasury Department has decided to eschew such collaboration and go in a different direction. They are instead leading a closed-door effort with the Biden-appointed heads of financial regulatory agencies to draft recommendations on how the administration should crack down on digital assets.

Read the Full Article Here.

Still-young crypto industry could grow stronger — if SEC allows it to thrive

By Charles Gasparino. September 19, 2021. (New York Post).

The noise surrounding the $2.2 trillion crypto industry often drowns out the reality that we are on the verge of something revolutionary. If things go right, crypto and the blockchain technology could usher in the next Internet revolution. 

Things are now going terribly wrong. The US stands the very real chance of killing this business here by driving digital innovation overseas and ceding advancements to other countries including Communist China.

Why? Because our regulators, mainly those at the Securities and Exchange Commission, are either too feckless or too turf-hungry (or a combination of both) to understand the dangers of their asinine approach to overseeing a nascent and important technology.

Read the Full Article Here.

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.

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.

Since Chairman Patrick McHenry threatened to SUBPOENA Gary Gensler for NON-COMPLIANCE with Congressional oversight.

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