An Open Letter to the Members of the House Financial Services Committee and of the U.S. Securities and Exchange Commission

By John E. Deaton.

I write to you on this public platform hoping you will truly understand the damage being inflicted on innocent holders of XRP. I represent 68,700 of those holders.

We are users, developers, small businesses, content providers and investors in the digital asset XRP. In 2015, XRP became the first regulated cryptocurrency in the United States, when the Department of Justice Civil Division and the Financial Crimes Enforcement Network (FinCEN) settled with Ripple, declaring XRP a “convertible virtual currency.”

After FinCEN declared XRP a virtual currency, forcing sales to comply with U.S. banking laws (not securities laws), foreign governments, including the U.K, Japan, Switzerland, Singapore and the United Arab Emirates, followed suit – all declaring XRP a non-security.

On December 22, 2020, five years after FinCEN classified XRP a virtual currency and seven and a half years after XRP had been publicly traded in the U.S., on SEC Chairman Jay Clayton’s last day, the SEC filed suit against Ripple alleging XRP to be an investment contract (aka a security) with Ripple.

As you all know, any commodity, asset or product can be packaged, marketed, and schemed into an offer and sale of an unregistered security. In fact, some of the different assets or products that have been packaged or schemed into an offer and sale of an unregistered security are:

  • Orange groves;
  • Whiskey;
  • Beavers;
  • Chinchillas;
  • Oil and gas;
  • Condos; and
  • Bitcoin;

to name a few.

The Supreme Court has never found the underlying asset, itself, to be the security. Whiskey is still whiskey, and beavers are still beavers.

In the Howey decision, the Court didn’t find the oranges to be securities, but found the scheme behind the offer and sale of the orange groves to be the security. Usually, the SEC argues a specific transfer at a specific time, by Ripple or its executives, would have constituted the sale of an unregistered security.

But in SEC v. Ripple, the SEC is alleging XRP itself is a security. The SEC claims all sales of XRP are illegal. Period. It is the most reckless and dangerous argument the SEC could make. Because of this unprecedented argument, over 68,000 XRP holders decided to fight back.

I’ve been granted amici curiae status for the benefit of XRP holders. The SEC, however, isn’t too happy about it. They attacked me personally and continue to take shots at the very people they claim they are protecting while prosecuting this case espousing an outrageous theory.

Although it laments amici’s presence in this case, the SEC has only itself to blame for amici’s involvement. In short, if the SEC had clarified its theory regarding XRP, it would’ve prevented amici’s involvement entirely and could have pursued Ripple without involving us. Nine days after the SEC filed the excessively broad complaint, in the interests of present-day XRP holders, I petitioned for a Writ of Mandamus requesting the SEC “amend its complaint against Ripple to exclude present-day XRP, purchased by investors with no connection to Ripple.”

The SEC’s sweeping allegations regarding XRP have been at issue since the filing of this case. In the Complaint and during the litigation of this case, the SEC has repeatedly used conclusory language and allegations suggesting XRP itself – is ALWAYS a security.

At its core, the Writ challenged the SEC’s good faith basis alleging that XRP is a security per se.

Within the Complaint:

  • Paragraph 1 labels XRP “a digital asset security”;
  • Paragraph 265 says “Because XRP is fungible”;
  • Paragraph 267 says “The nature of XRP itself”;
  • Paragraph 327 says “The very nature of XRP”; etc.

In fact during the very first hearing, Magistrate Judge Sarah Netburn confronted the SEC and challenged the implausible theory that “every individual in the world who is selling XRP [is] committing a Section 5 violation.”

The SEC’s response to the judge’s comment says everything. The SEC didn’t dispute the premise of the Judge’s question. The SEC instead claimed that XRP transactions by the rest of the world would likely be exempt under Section 4. (An exchange or any issuer would NOT be exempt.)

The SEC’s response was disingenuous at best and downright misleading at worst. Section 4 exemptions ONLY apply to a security subject to registration under Section 5. In sum, the SEC confirmed that regardless of the seller or circumstances of the sale – XRP is a security per se.

Why is this so dangerous and why has SEC Chairman Gary Gensler allowed it to be argued? Because if this premise is accepted by the Court, it would empower the SEC to regulate a vast number of parties not included in this case, including digital asset exchanges, vendors, and retail holders.

The SEC’s overreach threatens the interests of not only XRP holders, but the exchanges and businesses utilizing XRP and it implicates all other crypto assets. The ability for retail holders and small businesses to transact in XRP (and other crypto) could be greatly impaired.

The majority of XRP holders were unaware of a company called Ripple when they first acquired XRP. Tens of thousands of XRP holders acquired it for non-investment purposes. Many acquired the minimum amount to establish a trust line with the XRP Ledger in order to send money home. Many acquired it as a form of payment. Content providers like Time magazine accept XRP as a form of payment. Thus, Time isn’t an investor and Howey doesn’t apply. XRP is used as payroll currency. All of these non-investment uses get swept into the SEC’s overly broad theory.

XRP holders never imagined being implicated in an enforcement action against Ripple and its two executives. We take no position whether Ripple, Brad Garlinghouse or Chris Larsen violated Section 5 of the Securities Act when they offered and sold XRP during 2013 or yesterday. The SEC could have completely avoided amici’s involvement by simply stipulating secondary market sales of XRP, independent of Ripple, are not securities. It should’ve been an easy stipulation considering it would be consistent with SEC guidance and 76 years of legal precedent.

Had the SEC so stipulated, amici’s involvement in this case would have ended before it began. In fact, even Ripple was clear in communicating its position that amici’s interest would be minimal, if the SEC clarified it was not attempting to establish XRP as a security per se.

Similarly, in responding to the Mandamus Writ, the SEC could have confirmed its suit is not intended to affect the secondary retail market for XRP in the United States. But the SEC refused to make such a concession. The SEC’s enforcement lawyers won’t give up this outrageous claim.

The SEC’s sweeping and illegitimate theory is: “The XRP traded, even in the secondary market, is the embodiment of those facts, circumstances, promises, and expectations and today represents that investment contract.” This is from page 24 of SEC’s opposition to my motion to intervene, where the SEC attempts to split proverbial legal hairs by conceding XRP is not a security per se (“this case presents no such question”), while simultaneously arguing all XRP, including XRP traded in today’s “secondary market … represents” a security.

Remarkably, the SEC claims it is not arguing XRP is a security per se, but instead, arguing XRP is a representation of a security.

What does that even mean?

When does an asset transform from being an asset (whiskey, an orange, a beaver or a bitcoin) to also “representing” an investment contract?

The SEC must prove XRP is an investment contract. But the SEC unilaterally changed its burden to proving only a “representation” of an investment contract. The SEC doesn’t get to make up the law in order to satisfy a political desire to regulate a new evolving asset class.

The SEC’s theory regarding XRP is the functional equivalent of arguing the oranges in Howey were not only oranges but also “represented” the embodiment of the investment contract with the W.J. Howey Company. The SEC’s argument is tantamount to legal gobbledygook.

Current SEC Commissioner Hester Peirce seems to agree. The SEC’s precarious expansion of Howey, as applied to XRP, is so intellectually dishonest that Commissioner Peirce publicly criticized the SEC’s theory when she stated: “What we’ve done now is said the orange groves are kind of like the security.”

Personally, I believe the SEC lawyers have crossed an ethical line and lack the good faith required to make such an absurd argument. Their theory is certainly not supported by caselaw because a glaring omission from the SEC’s brief is a single cite supporting its outlandish theory. The SEC cites no legal authority whatsoever supporting the radical departure from needing to prove an actual investment contract to proving a representation of an investment contract (whatever the heck that means).

But what makes the SEC’s argument in the XRP case even more egregious is that it completely contradicts statements made by the SEC itself. The SEC’s farfetched XRP theory is a direct contradiction of public guidance provided by the SEC itself. In fact, as stated, according to the SEC (and 76 years of case law) any asset or commodity can be utilized as a security whether that asset is an orange, whiskey, a beaver or even a bitcoin.

Until the filing of this case, the SEC had never made a material distinction between bitcoin, ether or XRP. The SEC as a regulator made very clear that: “Whether a cryptocurrency is considered a security will depend on the characteristics and use of the cryptocurrency.” The emails from the SEC’s Office of Investor Education and Advocacy consistently provided the same exact guidance regardless of whether it was discussing bitcoin, ether or XRP. The SEC’s theory regarding XRP also contravenes proclamations made from the most senior officials at the SEC.

Read the 2018 speech by then-SEC Director of Corporation Finance William Hinman, where he says: “The token – or coin or whatever the digital information packet is called – all by itself is not a security, just as the orange groves in Howey were not.” Hinman noted that when dealing with digital assets like bitcoin, ether and XRP: “The digital asset itself is simply code.” Hinman also emphasized “that the analysis of whether something is a security is not static and does not strictly inhere to the instrument.”

Then SEC-Chairman Clayton agreed when he wrote to Congressman Ted Budd (R-NC): “I agree [with Director Hinman] that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument.”

“A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition,” Clayton wrote.

The SEC’s XRP theory clearly contradicts the SEC’s public statements. Relevant caselaw offers the SEC zero support. In SEC v. Shavers, bitcoin was utilized in a scheme that the federal Eastern District Court of Texas found constituted an illegal securities offering. Bitcoin itself was not considered the security.

In addition, we have the Telegram decision explicitly holding, as Hinman stated, that the token itself is never the security: “The security in this case is not simply the Gram, which is little more than alphanumeric cryptographic sequence.” Telegram was an ICO and, unlike this case, involved contracts signed by the Gram purchasers. Thus, if there ever existed a case where the token itself constituted the security, it would be Telegram. Yet, Judge Castel held that ““the ‘security’ was neither the Gram Purchase Agreement nor the Gram but the entire scheme that comprised the Gram Purchase Agreements and the accompanying understandings and undertakings made by Telegram.”

The only conceivable way to attempt to prove the extraordinary claim that XRP itself represents a security is to prove secondary market sales, independent of Ripple, were acquired by investors who entered into a common enterprise w/ Ripple, and all other XRP holders, based on the promises and inducements offered by Ripple, which caused those secondary market acquirers to expect profits from Ripple’s efforts. Yet, as stated, the majority of XRP holders were completely unaware of the company Ripple when they first acquired XRP.

Thousands of XRP holders acquired XRP for non-investment reasons. There are several XRP debit cards that allow you to use XRP as a substitute for fiat currency. Some XRP holders get paid in XRP. These use cases don’t even satisfy the first prong of Howey (an investment).

Tens of thousands of XRP holders stake their XRP for interest or collateralize their XRP to secure a fiat loan – thus obtaining a financial benefit completely independent of Ripple (this fails the common enterprise factor as well as relying on the efforts of Ripple factor).

While the skilled lawyers from both sides strategize their next move in order to gain a competitive litigation advantage, innocent users, developers, investors and holders of XRP, with no connection to these Defendants, fretfully await the outcome.

Will you do anything about it?

Who Will Protect Investors From The SEC?

By Roslyn Layton. December 5, 2021. (Forbes).

Last Wednesday, the current and previous chairmen of the Securities and Exchange Commission (SEC) shared what was billed as a “fireside chat” to open the Digital Asset Compliance & Marketing Summit. Gary Gensler and Jay Clayton spoke, took no questions, and agreed that the multi-trillion dollar crypto innovation space is a dark, menacing threat that legitimate crypto entrepreneurs must follow opaque rules or face crippling SEC lawsuits. Gensler made it clear that there is no difference between “fraudsters” and “good-faith actors” in crypto – both are lawbreakers endangering the public.

Many in the audience of crypto industry leaders, just maligned as crooks, were stunned. Gensler repeatedly said that “platforms need to come in and get registered,” as if everyone knew what he was talking about. Perianne Boring, the head of the Digital Chamber of Commerce tweeted, “People in the room are looking around and asking, “register as what?””

It’s a fair question given that the exchange Coinbase – the only crypto company to have gone public on the stock market – tried “going in”. Upon sharing to share its lending platform information, the SEC slapped Coinbase with a subpoena and the threat of what Gensler affectionately calls “the enforcement tool.”

Read the Full Article Here.

Biden and Trump S.E.C. Chiefs Trade Tips on How to Regulate Crypto

By Ephrat Livni. December 2, 2021. (The New York Times).

Regulators on the left and right rarely agree on policy. Yet, when it comes to cryptocurrency, two men who have led the Securities and Exchange Commission are remarkably aligned: The technology and offerings may be new, but old rules still apply.

Jay Clayton, the Republican S.E.C. chairman under President Donald J. Trump, interviewed Gary Gensler, the current S.E.C. chief in the Democratic Biden administration, on Wednesday at the Digital Asset Compliance and Market Integrity Summit in New York.

Mr. Clayton now advises crypto companies, and Mr. Gensler taught crypto classes as a professor at the Massachusetts Institute of Technology before joining the agency. When Mr. Clayton asked his successor whether the S.E.C. intended to regulate crypto, Mr. Gensler replied, “I don’t think you mind if I would quote you back to you.”

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.

Clayton, Gensler behind looming over-regulated crypto disaster

By Charles Gasparino. October 17, 2021. (New York Post).

A private meeting between then-Securities and Exchange Commission Chair Jay Clayton and a newly minted professor at the MIT business school named Gary Gensler appears to have set the stage for the misguided course of crypto-regulation we see today. 

Gensler, of course, would go on to take Clayton’s job after Joe Biden’s 2020 presidential victory. It’s unclear if the hyper-ambitious Gensler was actually prepping for that outcome by asking for the meeting. What is unmistakable: his intention to shape regulatory policy for crypto that has increasingly become a disaster.

Read the Full Article Here.

The Ethereum Free Pass, Fair Notice and the Fight Ahead

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

I believe we have reached a turning point in the fight against the Securities and Exchange Commission’s unfair and abusive treatment of XRP holders in its lawsuit against Ripple. So much evidence has come out in this case that exposes the outrageous actions of the SEC and the key figures behind the lawsuit, that I felt it was important to send you a complete summary of what has happened, why it’s important, and what I and 20,0001 XRP holders are doing in this fight.

It is a story of an overreaching regulator unfairly picking winners and losers in the blockchain business space, a web of insider connections and conflicts of interest, and thousands of retail investors who were egregiously harmed by the federal agency that is supposed to be protecting them.

The Key Players:

First, it is important to remind everyone of the key figures in this story.

Jay Clayton was a longtime partner at the law firm of Sullivan & Cromwell, where he notably co-engineered the Alibaba IPO in 2014. Alibaba owns Alipay, the Chinese payments service that was designed to directly compete with western fintech innovations using blockchain. Alipay has moved into cross-border remittances which is Ripple’s primary use case for XRP. When he was nominated to be SEC Chairman in 2017, he was dubbed “the most conflicted SEC Chairman in history” in an article that ran down his baggage of potential conflicts in the job. At his nomination hearing, he was reminded (and conceded) that if any matter related to a client of his from Sullivan & Cromwell came before the SEC, he would be barred from voting.

William Hinman was a longtime partner at the firm of Simpson Thacher & Bartlett, and co-engineered the Alibaba IPO with Jay Clayton. Hinman “retired” from Simpson Thacher to join the SEC as Clayton’s Director of Corporation Finance.

Ethereum was launched by the Ethereum Foundation in 2014 as an enterprise blockchain system, and its native currency, ether, was issued in an ICO to “anyone who wants to purchase” it. An early investor and co-founder was Joe Lubin. In parallel, Lubin founded…

ConsenSys, a for-profit consulting firm to promote and profit from building enterprise blockchain solutions exclusively on the Ethereum network. Lubin received 9.5% of ether. For reference, a $10,000 investment in the ether ICO and held to this day is worth more than $120 million. Thus, you can imagine Lubin and anyone else’s financial interest in ether.

ConsenSys is a client of Sullivan & Cromwell (Clayton).

The Enterprise Ethereum Alliance, a coalition of companies built to market Ethereum as an enterprise solution, includes Simpson Thacher & Bartlett (Hinman).

This is how Clayton, Hinman and Lubin were connected as this story began.


The “free pass” for Ethereum’s cryptocurrency, ether:

Papers filed in court and public statements on video from Lubin, Hinman and others linked to ConsenSys reveal that multiple meetings between ConsenSys and senior SEC officials were held in 2017 and 2018 to lobby the agency to give the ether token a regulatory “free pass”.

In Hinman’s deposition (taken in July by Ripple’s legal team), it is clear that Hinman directed his staff to set up a meeting with Lubin and Consensys on December 13, 2017. It should not be lost on you that the SEC was investigating and prosecuting dozens of ICOs that orchestrated crowd-fundraising exactly the way Lubin and Ethereum did (i.e., anyone could buy pre-mined ether tokens and their funds were used to build the blockchain). In fact, many people refer to the period as the “2017 ICO craze”.

The SEC actually sued a company called Telegram and achieved a preliminary injunction that prevented the development of its blockchain for conducting an ICO substantially similar to ether’s. At the time of this December 13, 2017 meeting, Ripple was not under investigation and XRP had been publicly sold and traded for over 4 years. XRP was also battling ether for the number 2 cryptocurrency by market cap behind bitcoin.

A key meeting was organized on March 28, 2018, by Andreessen Horowitz, where Ethereum investors presented a proposal for a regulatory free pass for ether. I have reviewed that “safe harbor” proposal thoroughly, and the only digital asset it even mentions is ether. Furthermore, key elements of the document were incorporated directly into Hinman’s speech saying that ether is no longer a security. In essence, Hinman’s speech was suggested by and partly written by some of Ethereum’s top investors.

We know that Lubin and Consensys met with the SEC at least three more times before Hinman’s June 14, 2018, speech where he declared that, “putting aside the fundraising” conducted by Ethereum with its token, ether is not a security and therefore not subject to SEC regulation. 

ConsenSys has been battling to gain market share of the cross-border payments market for Ethereum, competing directly with Ripple’s cross-border payments solution on the XRP ledger. After Hinman’s speech, Lubin publicly predicted that Ethereum would be the only enterprise platform to get a free pass from the SEC, and that “a reckoning is coming” for others — specifically Ripple. Mike Novogratz, Lubin’s college roommate and a major investor in ether, predicted just nine days before the speech that he would “bet dollars to donuts” that the SEC would declare ether to not be a security.

If you know Mike Novogratz, he cares deeply about his public perception and credibility and he would not go out on a limb and guarantee what the SEC was going to say unless he was assured of it from someone with personal knowledge. Novogratz, like Lubin, predicted that the SEC was going to select one token and its promoters and go after them to shut them down as an example. Shortly after Lubin and Novogratz’s public predictions, we now know that Ripple was notified of an informal investigation. 

Meanwhile, while Lubin and ConsenSys were holdings meetings with the SEC, future SEC Chairman Gary Gensler told an MIT audience that he didn’t see enough regulatory clarity in the market for digital assets, and said “even Ripple” needed clarity.


The Ripple Lawsuit:

The XRP cryptocurrency was never issued in an ICO, operates on a fully decentralized ledger and has been used by project developers and consumers with no connection to Ripple for years.  XRP fits the criteria of Hinman’s 2018 speech better than ether does. In fact, Ripple controls less than 4% of the validators on the XRP Ledger. Ripple once objected to a change on the ledger but was overruled by the majority of validators. The point is that the XRP network is arguably more decentralized than the ether network.  

The Ripple lawsuit was filed on Clayton’s last full day at the SEC in 2020. The timing was very curious. About two weeks before Clayton directed the suit be filed against Ripple, former SEC Commissioner Joseph Grundfest sent a letter to Clayton stating that he should not file the lawsuit as he was leaving the SEC. Grundfest argued that no exigency existed to file considering that XRP had been traded for over 7 years. Grundfest informed Clayton that the SEC could not make any material distinction between XRP and ether and if he filed the case it would call into question the SEC’s exercise of discretion. He also warned Clayton that the mere filing of the lawsuit would cause unprecedented billions of losses to individual investors with no connection to Ripple. When the suit was filed, XRP lost $15 billion in market cap. (It should be noted that Grundfest was retained by Ripple. It doesn’t change what he said being true.)

It’s also important to note that Clayton was the deciding vote to sue Ripple, on the 5-member commission. He chose to bring the most consequential enforcement action since the 1946 Supreme Court decision on Howey against Ripple, a direct competitor of his former law firm’s client, ConsenSys.

When challenged in court by Ripple’s legal team on the contradiction between Hinman’s speech and the SEC’s actions, the SEC has attempted to disown Hinman’s speech as market guidance or a determination by the SEC, claiming it was just his personal opinion and irrelevant to the case. In fact, the SEC had Hinman sign an affidavit that his speech was “only” his personal opinion and not that of the SEC.

This flimsy argument is now being torn apart by Ripple’s legal team, which has launched a “fair notice and due process” defense that could decide the case in summary judgment and possibly set a sweeping precedent that limits the SEC’s power to regulate cryptocurrencies.

All available evidence indicates that Hinman’s speech was intended as market guidance by everyone at the SEC; it was believed to be market guidance by Lubin, Ethereum Foundation and ConsenSys, and taken as market guidance by the media and investors. Multiple documents issued by SEC legal staff on other matters reference the Hinman speech as representing a “recognition” of Ethereum and ether by “the Commission”. The SEC has also admitted in court that no investigation was ever opened against ether. This means the agency never considered enforcement action against Ethereum despite its 2014 ICO and the Ethereum Foundation’s large-scale sales to speculators, like to Novogratz.

To date, ether is still the only altcoin in the market that the SEC has affirmatively anointed as a currency or commodity and not a security, even though it’s now trying to pretend it never anointed it, and Chairman Gensler is trying to pretend he never said in 2018 that Ripple deserved regulatory clarity.


Why did Ethereum get a free pass and Ripple get sued?

The “fair notice” defense in the Ripple case has led to this embarrassing question for the SEC. Here are some key observations:

  • The SEC has taken a well-deserved battering in court since it filed the Ripple lawsuit, and it raises another question: why file such a flawed case that could ultimately backfire so badly and set a sweeping precedent limiting the agency’s power?
  • Despite the SEC fighting tooth-and-nail to stop it, Ripple was granted the right to depose Hinman and now they are battling to get SEC documents showing who drafted, edited and saw the Hinman speech in advance. Those discovery documents revealed the speech was attached to 63 emails in the drafting phase, but the SEC refuses to disclose who was on them. Discovery also revealed that Hinman only provided a draft to Clayton and no other commissioner. This means Commissioner Hester Peirce, a.k.a. “Crypto Mom”, was not allowed to give input. The last official meeting between the SEC and Lubin and Consensys before the speech, was June 8, 2018. And thanks to the investigative work of the XRP Army on social media, I have obtained a copy of the March 2018 Andreessen Horowitz investor group memo to Hinman, advocating for a specific free pass for ether. We have proof that Hinman used the investors’ memo as the basis of his speech.
  • The Ripple lawsuit, filed on Clayton’s last day, has slowed Ripple’s interbank payments business and given ConsenSys an opening to try to pull ahead. Two months before the Ripple lawsuit was filed, Clayton’s firm of Sullivan & Cromwell assisted ConsenSys to acquire the Quorum interbank payments platform. And it has brought a lot of scrutiny to the web of personal financial interests tied up between Clayton, Hinman, Lubin and the Hinman speech.  

    Here is what we’ve documented:
  • Almost immediately after leaving the SEC, Clayton was hired by One River Digital Asset Management, a crypto hedge fund that “quietly” made a huge financial bet exclusively on bitcoin and ether starting shortly before the Ripple lawsuit was filed.  What a coincidence.
  • Less than a month after filing the Ripple lawsuit, SEC Enforcement Director Marc Berger left the agency to join Simpson Thacher & Bartlett, of the Enterprise Ethereum Alliance. What a coincidence.
  • From 2017 to 2020 – the same years he served at the SEC – Hinman received over $15 million in payments from Simpson, Thacher & Bartlett. What a coincidence.
  • Immediately after leaving the SEC, Hinman returned to Simpson Thacher & Bartlett. He also was named senior advisor to a new $2 billion crypto fund at Andreessen Horowitz. What a coincidence.


My Role and Why I’m Doing This:

I am not here to defend the company Ripple in any manner. Ripple’s legal team is as impressive as it can be. Ripple has former SEC Chair Mary Jo White as counsel, along with a former Director of Enforcement and a former Director of Corporation Finance on its team. 

The truth is that all of these cryptos start out as a security in the first few years. Arguably, bitcoin is the only crypto asset not to originate a security. But even bitcoin was sometimes considered a security by the SEC in 2014 and 2015. 

I now represent 20,0001 XRP holders who were harmed by the SEC’s lawsuit against Ripple. I got involved in this from the very beginning. The SEC filed the case on December 22, 2020. When I read the Complaint I knew that this case was NOT about securities laws but about something very different. I acted immediately.

Nine days later, on January 1, 2021, I filed a Writ of Mandamus against the SEC in Rhode Island Federal Court, asking for the Court to order the SEC to amend its Complaint. Specifically, I wanted the SEC to exclude characterizing as unregistered securities the XRP held by my clients that were purchased in the secondary market from Coinbase and other exchanges and not from Ripple. Many of my clients had never heard of Ripple until the lawsuit. It is difficult to enter into a common enterprise and rely on the efforts of someone you’ve never heard of.

The SEC objected to my Writ of Mandamus and stated that only the Southern District Court of New York – where Ripple lawsuit was filed – could hear any matter related to XRP. I immediately withdrew my Writ and filed a motion to intervene as a defendant in the SEC case against Ripple. The motion has been fully briefed and we are waiting for a decision.2 If the SEC had limited its claims against Ripple to early specific distributions of XRP, I would have never filed anything.

But, for the first time in SEC history in a non-ICO setting, the SEC is claiming that all XRP, even the XRP purchased by people in the secondary market with no connection with Ripple, are unregistered securities. The SEC is claiming this 8 years after it allowed XRP to be publicly traded and after it allowed Ripple to purchase a minority stake in MoneyGram knowing XRP would be utilized. After approving that acquisition, the SEC is now claiming that the XRP distributed by Ripple to MoneyGram, that MoneyGram sold to Coinbase, and that Coinbase sold to me, or you, are all unregistered securities. It’s madness.

As far as my role or potential bias in this case, I am not being paid for my efforts and I have used my own money to fund the intervention. I have no connection to Ripple or its attorneys. If I have a bias, it’s a free-market, libertarian bias. Plus, if one looks at the stories I’ve read of people’s life savings being wiped out because of the SEC’s actions, you will understand why I’m doing this as well. If someone gets harmed because they made a bad investment that’s fine. But it shouldn’t be because government officials are picking the winners and the losers in an environment where there is no regulatory clarity at all.

With all these facts as our greatest strength, along with our numbers, we will fight to the end.

1 The number of XRP holders who have joined the putative class as amici curiae has grown to more than 60,000 since the publication of this blog post.
2 On October 4, 2021, in response to the Motion to Intervene, U.S. District Judge Analisa Torres granted the movants and me “friend of the court” status (amici curiae) “to assist the Court by briefing legal issues relevant to the case as approved in advance by the Court. The Court contemplates that such assistance will be most beneficial during briefing on dispositive motions, but may exercise its discretion to request or deny further applications as appropriate.”

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.

Gensler’s Crypto Mess: It’s Time For Congress To Teach The SEC What “Clarity” Means

By Jared Whitley. September 16, 2021. (Seeking Alpha).

The U.S. Securities and Exchange Commission (SEC) is playing a ridiculous game with the blockchain and cryptocurrency industry and the millions of investors it claims it’s trying to protect. The agency insists there is “clarity” on the rules it applies to digital assets, but will only communicate them through lawsuits. It tells the best, most innovative U.S. blockchain companies to “come in, talk to us,” and share the details of their product development line under the false pretense of guidance on being compliant, only to slap them with subpoenas instead. Not even the highest-priced securities lawyers can tell these companies what compliance looks like with any certainty. It’s driving exasperated American innovators overseas, and putting our economic future in danger.

If previous SEC Chairman Jay Clayton was the “most conflicted chairman in history”, then Biden’s pick – Gary Gensler – is the most clueless. Ever since he was confirmed he’s been saying that the rules on what makes a digital asset a security are “clear” and that he’s dedicated to “protecting investors”. But ask any retail digital asset investor and you’ll know that nothing is clear and none of them feels protected by Gensler. Quite the contrary, they see Gensler as the danger they need protection from.

It doesn’t even help to register your blockchain enterprise with the SEC to list it on the stock market. Coinbase, the leading crypto exchange platform, went public earlier this year and subjected itself to the full SEC cavity search. It competes with many non-listed blockchain companies offering lending products who haven’t faced any enforcement action from the SEC. Coinbase’s CEO Brian Armstrong shared his proposed lending product with Gensler’s people and they warned him if he started offering it, they’d drag him into court unless he registered the offerings as securities. He asked for guidance on why, and they refused to answer. A Wells notice followed, which is how the SEC warns you a lawsuit is coming. This behavior by the SEC was so shocking that some of Coinbase’s fiercest competitors rose to its defense.

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It’s Time To End The SEC’s ‘Clarity’ Charade On Crypto

By Roslyn Layton. September 12, 2021. (Forbes).

For five years, investors and project developers in the $2 trillion blockchain innovation space have been subjected to an increasingly maddening charade that the U.S. Securities and Exchange Commission (SEC) has called “regulatory clarity.” Years of SEC speeches, public statements, meeting records, correspondence and first-hand accounts from market participants provide anything but clarity for the rules on digital assets or distributed ledger technology (DLT) projects. This is another financial crisis in the making.

SEC Chairman Gary Gensler said at an Aspen Institute appearance this summer that the rules are “awfully clear” on crypto. In a recent interview with Financial Times, he urged developers to “talk to us, come in” because the fate of the industry, like all finance, “is about trust.” Few can see this “clarity,” but its absence is so acute that even the biggest U.S. companies in the blockchain industry can no longer count on the SEC to provide any clear guidance other than through a lawsuit.

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The Crypto Uprising The SEC Didn’t See Coming

by Roslyn Layton. August 31, 2021. (Forbes).

When the U.S. Securities and Exchange Commission (SEC) filed its bombshell lawsuit against cryptocurrency innovator Ripple Labs in December 2020, it didn’t expect blowback. But during the pre-trial phase, Ripple’s legal team has put the SEC itself on trial after years of conflicting and confusing guidance on the rules for cryptocurrencies. No one expected the tsunami of legal, political and social media action from retail cryptocurrency investors, outraged by the betrayal from an agency claiming to protect their interests. The meltdown of the SEC’s credibility with this $2 trillion global investor community exposes a costly SEC miscalculation.

Indeed, official Washington has been back-footed by the size, scale and diversity of the crypto investor class and the industry they support. Lampooned by mainstream media and the U.S. government for years, the crypto community has built a media ecosystem that connects millions of investors, consumers, developers and entrepreneurs across the globe. It’s fitting that the pioneers of the blockchain economy would apply consensus protocols to their communication. This decentralized social media apparatus has proven powerful — just ask Congress after the backlash of the infrastructure bill over a badly written crypto tax provision. When the Ripple lawsuit was filed, that ecosystem galvanized an independent battlefront unexpected by the SEC.

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