The Securities and Exchange Commission has repeatedly insisted it has provided clarity to investors on precisely how it determines whether a digital asset is a security, therefore subject to its regulation, or not. However, it is nearly a universal perception among digital asset investors and blockchain project developers that the SEC provides no clarity whatsoever, and its public statements and actions have only generated market confusion. In turn, this has led to what many have called “regulation by enforcement.”
Many holders of the XRP digital currency believe that they were unfairly harmed by the SEC’s lawsuit against Ripple Labs and its two top executives in December 2020, which crashed the value of their holdings and led to massive panic selling, suspension of XRP trading on exchanges, and $15 billion in forced losses to retail investors. Over 19,000 of them have joined a Motion to Intervene in the case, as neither the SEC nor Ripple represent their interests but they have been harmed by the lack of fair notice from the regulator who filed the enforcement action. The SEC has responded that all XRP holders should have known that XRP – which operates on a fully decentralized, open-source ledger, was a security from 2013 until the day the lawsuit was filed.
In response, these investors have crowd sourced a wealth of evidence that supports their conviction that the SEC failed to provide fair notice to the markets, and instead fostered market confusion which allowed for “picking winners and losers” rather than providing equal protection to all investors. Furthermore, in this climate of market confusion, the evidence suggests unfair advantages were granted to insider investors by senior SEC officials with conflicts of interest.
This page will be updated regularly as new evidence emerges.
[Last Update: September 18, 2021.]
Jay Clayton, Senate Banking Committee confirmation hearing
Jay Clayton is questioned by Sen. Elizabeth Warren (D-MA) over how he would be barred from voting on the SEC on matters involving clients of his law firm, Sullivan & Cromwell
ConsenSys is “Building an Alliance” with SEC
Matt Corva says Joseph Lubin’s company, ConsenSys – a client of Sullivan & Cromwell, Jay Clayton’s law firm — has been “building an alliance with other blockchain companies, law firms…and regulators. We’ve had some talks with the folks at the SEC.” He is referring to the Enterprise Ethereum Alliance founded in 2017, which also includes Simpson Thacher & Bartlett, the law firm of SEC Director of Corporation Finance William Hinman. The Alliance’s mission is “to drive the use of Enterprise Ethereum”.
Investors Meet SEC, Ask for Free Pass on Ether
Andreessen Horowitz organizes a meeting of Ethereum investors and lawyers with the SEC to lobby for a free regulatory pass to ether, which was launched with an ICO in 2014 and has been sold in large quantities to investors for speculative purposes afterwards.
A participant in the meeting, Nancy Wotjas, later revealed that a group of Ethereum investors and a member of the Enterprise Ethereum Alliance, the law firm of Perkins Coie, gave the SEC the written proposals that the New York Times quoted as seeking a free pass for ether.
Source: The New York Times
Gary Gensler, MIT Business of Blockchain
Then-former CFTC Chairman Gary Gensler says there is not regulatory clarity in the digital asset markets, and “for Ripple” there “needs to be clarity in the market.”
Hinman Exchange with Rep. Tom Emmer
At House Financial Services Committee hearing, Rep. Tom Emmer (R-OK) asks for specific definition on when a token is not a security. They discuss the definition of a “utility token” which does not fit the description of ether. Emmer asks what projects can do to “improve regulatory clarity” to prevent “enforcement actions by the SEC”, and Hinman replies that the SEC is “meeting with participants” with tokens that “they believe shouldn’t be regulated as a security and we work through with them how that may be structured.”
Robert Jackson, CNBC
SEC Commissioner Robert Jackson says Chairman Clayton “has not seen an ICO that is not a security”.
Charles Gasparino report on Brooklyn Project, Fox Business
Charles Gasparino of Fox Business has spoken to “major players in the cryptocurrency and blockchain industry” who are “coming together with a consensus” on an “organizational route” to ensure that “anything that is traded inside their blockchain to be considered a currency” and “given legitimacy”. He cites the Brooklyn Project, started by Joseph Lubin and figures linked to Ethereum, who “have a lot of friends on Wall Street.”
Gasparino also tweets that Lubin’s effort “seeks to create the first Self Regulatory Organization sanctioned by
@SEC_Enforcement”. The Brooklyn Project then tweets a “big correction”: “Not SEC sanctioned, and no current plans for a sanctioned organization.” Gasparino replies that he’d been told what he reported. This was about one month before the Hinman speech.
Joseph Lubin, keynote address at Ethereal Blockchain Conference, New York
Lubin says that “we need mechanisms” to allow for fundraising and token sales “despite the fear, uncertainty and doubt you’ve heard over these many months, we are making great strides in helping the people that make those decisions understand…”. This was one month before the Hinman speech.
Joseph Lubin, Fluidity Summit
One month before the Hinman speech, Lubin (after doing his “legal homework”) says ether was “never a cryptocurrency” and sold “very explicitly to software developers, to people who intended to use the system” and “not sold for speculative purposes.” He says “it never was a security.” (In fact, Ethereum co-founder Vitalik Buterin advertised the 2014 ICO as “an opportunity for anyone to purchase ether” which was “a currency inside the Ethereum system sort of like the XRP in Ripple.” Buterin also structured a sale of 500,000 ether tokens to Lubin’s college friend Mike Novogratz in 2015, which he said made him a hefty profit on the secondary market.)
Tom Lee, CNBC
Tom Lee (ex-JP Morgan) makes elliptical comment that the SEC will declare that ether is not a security, causing a confused CNBC host to ask for him to explain. (Did Lee see a draft of Hinman’s speech?)
Joseph Lubin, Viva Tech conference in Paris
Joseph Lubin of ConsenSys and co-founder of Ethereum says “we are able to issue” tokens that are not securities and describes apparent details of the Hinman speech almost a month before it is made.
Michael Novogratz, Bloomberg
Mike Novogratz, with whom Vitalik Buterin arranged a purchase of 500K ether tokens for speculative purposes in 2015, says “I bet dimes to donuts” that the SEC will say that ether “probably was a security but it isn’t anymore.” This was nine days before the Hinman speech (Did Novogratz see a draft in advance?)
Jay Clayton, CNBC
Jay Clayton confirms that he sees most ICOs are securities. The host asks whether the SEC is “planning now to make a clear statement on that” and Clayton replies: “Bob, I hope I just did.”
Joseph Lubin Interview
Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, says that “we certainly need bodies like the SEC to scare many projects straight.”
Joseph Lubin on his ETH “framework” with the SEC
Joseph Lubin, co-founder of Ethereum, describes how “we have a framework that enables us to sell consumer utility tokens, not in enormous quantities, not with discounts for large investors” and that purchasers “have to be accredited” and “demonstrate you will use these tokens on these platforms”. (Lubin does not mention that 500,000 ether tokens were sold in a private transaction to his college roommate, investor Mike Novogratz, in 2015. Novogratz said he later sold them at an enormous profit.)
All Five SEC Commissioners, Atlanta Town Hall
In the presence of all the commissioners of the SEC, Abraham Xiong of the Blockchain Chamber of Commerce, who says “there is not a lot of clear guidance” on blockchain technology from the SEC, and asks for an “official position” from the commissioners. Chairman Jay Clayton insists that “we have had very clear rules on how to conduct fundraising” and that “most of what I’ve seen in the ICO space is a securities offering. It is raising money for a project where I give you my money, you give me some type of write-back that reflects a return on your project. That’s a securities offering. And I don’t know how much more clear I can be about it.” This was one day before Hinman’s speech.
Hinman Deputy Amy Starr, Atlanta Town Hall Meeting
The SEC’s chief of capital markets trends at the Division of Corporation Finance, Amy Starr, says that if a token is “literally something that you are buying and you are only going to use it on an already existing platform, that you are buying to use, then I would say, “hey, that token is a use token” which may not have the characteristics of a security.” (This has been the experience of thousands of XRP purchasers and XRPL developers who would later be harmed in the filing of the SEC v. Ripple lawsuit in December 2020.)
This was one day before Hinman’s speech.
The Hinman Speech
The speech by William Hinman at the Yahoo Finance All Markets Summit which declares that “putting aside the fundraising” of Ethereum’s ICO, ether is not a security.
Hinman then commented on his own speech moments after giving it, saying that the speech was given because “the chairman and the SEC” felt they had to “be clearer” and “transparent” and give “guidance” about ether.
The SEC’s legal staff has frequently cited this speech to affirm in official SEC legal documents that “the Commission has publicly recognized Ethereum and its native currency Ether.”
Court filings indicate drafts of the speech were attached to at least 63 SEC emails before it was final, and the SEC refuses to identify who the recipients and drafters were inside and outside the agency.
After suing Ripple, the SEC and Hinman disowned this speech as being market guidance from the SEC, arguing it was only Hinman’s “personal opinion”.
Source: BankXRP and @CryptolawUS