Hinman’s Revolving Door Now Swings to Andreessen Horowitz

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

Former SEC Director of Corporation Finance William Hinman continues his journey around the golden revolving door.  The man who helped take Alibaba public in 2014 as a partner at the Ethereum-connected law firm Simpson Thacher went into the SEC in order to give public regulatory clarity to only one cryptocurrency – ETH – to then exit the SEC and return to Simpson Thacher. Well, he was not finished.

Today, the tech venture capital giant Andreessen Horowitz announced Hinman has joined their firm as an advisory partner in their $2.2 billion “a16z crypto” fund.  The company said that Hinman “will provide valuable insights to us and our portfolio companies as well as play a key role in shaping the future regulatory environment in which we and they operate.”

Hinman’s new fund is among the largest crypto investment funds in history, about four times the size of Andreessen’s previous crypto fund. It’s easy to see why Andreessen would ask him to “shape the future of the regulatory environment” to turn their chosen investments into winners. Look at all he did to send the price of ETH soaring when he was a public official who happened to be receiving $15 million in payments from Simpson Thacher while in office.  ETH started soaring from around $477 the day before he gave his “ETH is not a security” speech in June 2018 as an SEC official, to over $4000 last month. Simpson Thacher also cashed in on Hinman’s 2018 speech when it took the Chinese crypto mining equipment maker Canaan into an IPO that raised $100 million in late 2019. The regulatory clarity for a mined cryptocurrency like ETH after Hinman’s speech certainly helped boost Canaan’s value, and the IPO certainly made Simpson Thacher richer – and Hinman, thanks to the millions they were paying him.

Hinman is no longer at the SEC, but the experience of riding the most brazen revolving door in recent memory must have some experiential value for his new firm. However, the folks at Andreessen Horowitz might consider the darkening cloud over their new advisory partner, particularly as the discovery phase of the Ripple case proceeds and depositions are ordered. Regardless of the ultimate case outcome, the questions around Hinman’s financial conflicts of interest while he served at the SEC will travel with him wherever he goes until they are answered.

If the SEC gets its way, those questions will remain outstanding, as the SEC has been fighting to prevent Hinman from facing deposition. This begs yet another question — is this fight worthy of taxpayer dollars? Surely Simpson Thacher can find a qualified attorney or two, so why should the taxpayers have to carry the water in preventing the truth from being exposed? 

With Washington recommitted to innovation, cryptocurrencies need a congressional fix

By Former Rep. George Nethercutt. June 20, 2021. (The Hill).

Congress just achieved a rare bipartisan feat in passing the “Endless Frontier Act” through the Senate. This bold legislative package recommits the U.S. to technological innovation and global leadership in the race against Chinese domination. At the very least, Republicans and Democrats understand that the U.S. must do more to win this fight. However, unless the Biden administration and Congress change their current attention deficit on cryptocurrencies, America’s efforts may be in vain.

Beneath the headlines and outside of the halls of Congress, federal bureaucrats are actively circumventing Congress and using the courts to regulate the U.S. cryptocurrency industry. The total lack of regulatory clarity in the Securities Act is the main culprit and consensus is building. This is especially evident to observers of the Securities and Exchange Commission’s (SEC) December 2020 lawsuit against San Francisco-based enterprise software company Ripple over its distribution of the cryptocurrency XRP.

Read the Full Article Here.

“Cryptocurrencies can help solve economic injustice. Democrats shouldn’t fear them”

By Sheila Warren and Michael Casey. May 28, 2021. (Roll Call).

When Joe Biden won the presidential election, he pledged immediately to begin working on behalf of the voiceless and the underserved: by rebuilding the middle class, heeding science to end the global pandemic and creating lasting recovery that delivers racial and social justice.

Now, with Biden in office and key appointments filled, Democrats have a chance to fulfill those promises. Cryptocurrencies and the revolutionary technology powering them present an unprecedented opportunity to help do so. 

Read the Full Article Here.

NOTE: Sheila Warren is the deputy head of the World Economic Forum’s Centre for the Fourth Industrial Revolution and a member of the forum’s Executive Committee. Michael J. Casey is the chief content officer for CoinDesk, a cryptocurrency news site, and a former columnist for The Wall Street Journal. Warren and Casey co-host CoinDesk’s Money Reimagined podcast.  

Ripple case seen as precedent for cryptocurrency regulation

By Keith Lewis. May 4, 2021. (Roll Call)

Cryptocurrency experts are closely watching a legal battle between Ripple Labs Inc. and the Securities and Exchange Commission, anticipating the case could establish precedent and clarify the regulatory landscape for digital coin offerings.

The SEC last year sued the company, CEO Brad Garlinghouse and Executive Chairman Chris Larsen in the U.S. District Court for the Southern District of New York, alleging they should have registered XRP under securities law. Ripple and its executives have asked the court to dismiss the case.

Ripple scored wins in preliminary rulings in the federal court, including gaining access to internal SEC documents and shielding its executives’ personal bank records from discovery. Holders of Ripple’s XRP cryptocurrency at issue in the litigation were also granted permission in April to intervene in the case.

Read the Full Article Here.

Cryptocurrencies Are Not a Fad, They’re a Revolution. America Needs to Prepare.

By Bill Tai. May 4, 2021. (Morning Consult).

In the mid-1970s, a cutting-edge group of hackers founded the Homebrew Computer Club in Silicon Valley. Their specialty was developing tools to break into the telephone systems of major corporations, and they went on to create innovative technologies that changed the world, generating millions of dollars in value along the way. One of those hackers was Steve Jobs.

It was in the days of an innovation economy that fostered risk and was free from crushing regulations that I found my start and built a career in technology, as did the founders of companies like Apple, Microsoft, Intel, and Cisco. The disruption of incumbents, however uncomfortable, placed Silicon Valley on the map and put the United States at the forefront of an economic revolution that forever changed the way we live.

As we near the end of the coronavirus pandemic and step into a new chapter of our nation’s economy, one that’s more digitally connected than ever before, we should create policies to foster this same sense of innovation within today’s tech sector. Under the new leadership of the Biden administration, America has an opportunity to take a fresh look at one such disruptive technology: blockchain and cryptocurrencies.

Read the Full Article Here.

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.

The SEC Raised its Fist and Showed Its Contempt for Us. Today, We Answered.

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

Five months ago, almost to the day, the U.S. Securities and Exchange Commission filed a lawsuit against Ripple but made it clear it was coming after everyone connected to XRP.  They ignored warnings that this lawsuit would cause serious harm to countless people.  There was never one phrase in the mountain of pages the SEC has filed since December 22, 2020 that showed one bit of consideration for the retail investors they are supposed to be defending by their every enforcement action. When we asked the court to hear our voice, the SEC scoffed and insulted us in their formal response, saying that all of us who suffered collateral damage from their ill-conceived lawsuit should remain silent.

Today, we answered them.

I have just filed our Motion to Intervene in the case of SEC v. Ripple, on behalf of an entire community of XRP holders, users, developers, content providers and the many small businesses that utilize the digital asset XRP as well as the XRP Ledger.   In short, I made it clear to the court that without our intervention, we are without a voice in a debate of great stakes for us and the holders of all digital assets in the United States.

When the SEC brought this lawsuit against Ripple and its two executives, it not only claimed that Ripple and its executives conducted an unprecedented eight-year continuous and ongoing coin offering, it also specifically alleged XRP itself to be an unregistered security and all of us who have traded it since 2013 have been engaged in unlawful trades.

This troubling claim is not disguised or otherwise difficult to find. In the first paragraph of their complaint, the SEC labels XRP itself as a “digital asset security.” The SEC claims that “from 2013 through the present, Defendants sold over 14.6 billion units of a digital asset security called XRP.” The SEC is alleging that any sale or transfer of XRP by any entity, business or individual is a violation of Section 5 of the Securities Act.  They also go further in saying that XRP has “no utility” other than as an investment contract in Ripple, despite the fact that a massive community of XRP users and developers has existed for years completely apart from that company.  Indeed, a huge segment of XRP holders had never heard of Ripple when the SEC accused them of having entered into a “common enterprise” with Ripple.  The absurdity and arrogance of this unrestrained, out-of-control regulator’s claims could not be further from the truth.  Their logic could only be sustained if the SEC was able to suppress any XRP retail holder from speaking up and telling our stories of how we use this digital currency in a variety of ways.

It should give all cryptocurrency holders and developers faith that the U.S. District Court for the Southern District of New York does not appear to be buying what the SEC is trying to sell in this case.  It has taken on the SEC’s lawyer over XRP’s utility as well as his preposterous argument that all sales of XRP are unregistered securities trades.  Best of all, the court has invited us to argue why we retail holders – those the SEC is supposed to be protecting – should intervene in the case.

For more than eight years, the SEC allowed XRP, the XRP ledger, and their associated technologies evolve from a promising digital asset with superior functionality into the third-largest digital currency in the world. The XRP of 2021 is very different than that of 2013. For these reasons, it is clear that those of us who hold and use XRP have a right to intervene in this case in order to adequately our interests. The very interests the SEC decided to dismiss when they filed their December complaint.

If the SEC is successful in its attack on Ripple and XRP, it will assume the authority to regulate and attack every other cryptocurrency in existence. The precedent set here become the new standard and no digital asset exchanges, developers, vendors, ordinary users, and retail holders of cryptocurrencies will be safe.  

It is now up to the court to decide whether we can join the case.  Nothing is guaranteed, and we must respect the judge’s ultimate decision.  But I’m proud and honored to have the trust and support of such a dynamic and innovative community of XRP holders who refused to back down when the government raised its fist and told us to be silent.

Cryptocurrency’s Future in the U.S. Is Threatened By SEC Action Against Ripple

By J. Carl Cecere. April 19, 2021. (Bloomberg Law).

Securities and Exchange Commission Chairman Gary Gensler has an important opportunity to undo actions taken in the waning hours of the Trump administration that threaten cryptocurrency innovation.

Back in December, outgoing SEC Chair Jay Clayton brought an unprecedented enforcement action against the enterprise software company Ripple, creator of the digital currency XRP—which was the world’s third most popular cryptocurrency, but not anymore.

The SEC’s lawsuit seeks billions in penalties from Ripple Labs Inc. and its executives. But the agency does not allege that any of its investors were defrauded.

Read the Full Article Here.

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.

The SEC Is Misleading the Court. Every XRP Holder is a Target.

By John E. Deaton, Founder and Host of CryptoLaw

The SEC’s attack on Ripple has been a case against all XRP transactions from 2013 to the present day.  That is not only the clear message of the SEC’s complaint, but also in the precedence of its attacks on other digital assets.  Judge Sarah Netburn caught SEC prosecuting attorney Jorge Tenreiro saying it as clearly in court during a March 12 hearing: “Every sale is a violation,” he said.  Judge Netburn pressed Tenreiro: “Presumably under this theory then, every individual in the world who is selling XRP would be committing a Section 5 (of the Securities Act of 1933) violation based on what you just said.”  Tenreiro scoffed at the judge’s question, saying that retail holders of XRP are protected under the exemptions of Section 4 and only “the issuer” is a legal target.

Well, we know that isn’t true.  What is worse, the SEC also knows it isn’t true.

Just look at the case against Telegram.  Judge P. Kevin Castel of the same U.S. District Court for the Southern District of New York found that Telegram’s offers and sales of its Gram token were an ongoing violation of Section 5 and “[w]hen distribution reaches the public, the SEC can invoke jurisdiction and claim that the public needs the protection of the Securities Act. The term issuer means every person who issues or proposes to issue any security.” 

That means any exchange who lists the token and any retail holder who sells it to someone else. 

Tenreiro’s attempt to mislead the court goes further.  He was the lead attorney for the SEC in the Telegram case.  He knows what he argued, and what the judge ultimately ruled in the case.  He can’t claim ignorance in front of Judge Netburn, or any of us. We are watching the case closely and we are well aware of the stakes for us, as holders of XRP, but more broadly as holders of all cryptocurrencies. Make no mistake, what happens in this case will have a major impact on the future of crypto, at least in the U.S. 

The absence of any protections granted or expressed for holders of XRP in the SEC’s complaint against Ripple was deliberate.  If they wanted to reassure the millions of XRP holders, they would have done so at the beginning.  To date, the SEC has not offered reassurance in any manner, not in Tenreiro’s response to Judge Netburn, not in their reply to our pre-motion letter, not anywhere.

The SEC’s mission to “protect investors; maintain fair, orderly, and efficient markets,” appears to be in vain in this case. Their decision to establish policy by enforcement, filing an 11th hour lawsuit, not only sparked panic-selling of XRP and delisting of the token by exchanges, it fostered an uneven market by picking winners and losers, and added even more regulatory uncertainty surrounding crypto. 

Also, don’t forget that in the Telegram case, the SEC sought and received a preliminary injunction preventing the company from using the funds raised from selling Grams to build its TON Blockchain, noting its fundraising scheme violated existing securities law. Notably, the fundraising scheme used by Telegram is strikingly similar to the offering scheme Vitalik Buterin used to launch Ethereum. Also curiously, ex-SEC Director of Corporation Finance William Hinman made it clear that in his eyes ETH is not a security. So why then go after Telegram?  Perhaps the $1.6 million in payments he received from a law firm that sits on the Enterprise Ethereum Alliance during his tenure at the SEC had something to do with it.

I have said from day one, I am not an expert in crypto nor a securities lawyer, but it doesn’t take an expert to see that plenty is very wrong, very corrupt and very outrageous about the SEC’s lawsuit against Ripple.  I hope that clarity is on the horizon, but I fear that for the retail holders represented in our case the fight has just begun.