The Hinman documents were finally revealed and made available to the public on June 12 after a long tug-of-war between Ripple and the US Securities and Exchange Commission (SEC), but what exactly do they reveal?
The documents are lengthy, and while they can be found on public resources such as the Public Access to Court Electronic Records (PACER) or CourtListener, attorney James Filan tweeted on June 13 collating them at two URLs.
— James K. Filan (@FilanLaw) June 13, 2023
Speaking to Cointelegraph shortly after the unsealing, pro-XRP attorney and CryptoLaw founder John Deaton shared his belief that “the documents themselves do not impact the judge’s underlying analysis of whether XRP (XRP) was offered/sold by Ripple as an investment contract, or the status of XRP on secondary markets in the United States.”
This is seen as a key defense for Ripple during its legal battle with the SEC. But those closely following the case will know that the documents were not expected to do so, even though then-SEC Chairman Jay Clayton did reference to the discourse as “the approach we take to assess whether a digital asset is a security”, the speech of 2018 carried notices that it was the personal opinion of then-CFO William Hinman, which “does not necessarily reflect the views of the SEC.”
With the Hinman documents being such a popular topic, many other knowledgeable lawyers have also wondered what the documents could mean for XRP and Ether (ETH).
Were the documents of little importance?
After the documents were unveiled, many onlookers, including Gabriel Shapiro, general counsel at cryptocurrency firm Delphi Labs, took to Twitter calling them a “nothing burger” (of little relevance), to no avail at all. the case between Ripple and the SEC.
Hinman emails are a nothingburger though great for ETH. No idea why Ripple thinks these emails help Ripple’s case….
— _gabrielShapir0 (@lex_node) June 13, 2023
Pro-XRP lawyer and founder of Hodl Law, Fred Rispoli, had a different opinion when he appeared on the podcast Thinking Crypto on June 15. He suggests they are “explosive” because while “we all know there’s a revolving door” between regulators and private companies – and “deals behind the scenes” – the public rarely gets a chance to see it as clearly as shown in the emails. .
In other words, while the documents might not help Ripple in determining whether XRP is a security, they do affect the credibility of the SEC. He clarifies why Hinman gave the speech despite denial from other SEC divisions.
The documents also highlight what appears to be an acknowledgment by SEC Office of General Counsel Laura Jarsulic that tokens in a sufficiently decentralized network could exist in a “regulatory vacuum” in which tokens “are not a value because there is no ‘controlling’ group”, but “there may be a need for regulation to protect buyers”, such as with credit cards and medicines.
This could be significant, given that current SEC Chairman Gary Gensler has repeated countless times that he believes that all cryptocurrencies except Bitcoin (BTC), are securities and that there are already standards for cryptocurrencies.
A Boost to Ripple’s Fair Notice Defense
Ripple’s fair notice defense refers to the argument that the SEC had failed to give it sufficient notice before suing it for committing securities fraud in December 2020.
However, the defense is not generally considered to be strong, as long-standing judicial precedents—namely, the Howey test that determines whether a transaction qualifies as an investment contract or a security—is considered fair notice.
The FAIR NOTICE DEFENSE is not what a lot of people think it is. I see a lot of comments about how @Ripple‘s FND is a slam dunk and Ripple and #XRP will win. Make no mistake about it, Ripple hopes the judge never decides the FND. #XRPHolders would prefer no decision on the FND.
—John E Deaton (@JohnEDeaton1) July 2, 2022
But in the interview with Cointelegraph, Deaton suggested that the documents support Ripple’s argument that the speech sowed confusion in the market and hampered the ability of market participants to determine exactly what constitutes a security under the Howey test, saying:
“The documents do help Ripple (and others) to argue that the speech caused further confusion in the markets, causing market participants to lack adequate notice of what was prohibited under existing law.”
The credibility of the SEC
Hinman’s documents show conversations among various SEC members as they tried to prepare the speech for publication.
As Ripple’s chief legal officer, Stuart Alderoty, noted in a Twitter thread on June 13, the emails also note that Hinman had received feedback from other SEC divisions, noting that some of the factors he used in determining that Ether was not a value had no legal basis.
3/A refresher: Hinman, as Head of the SEC’s Corp Fin, gave a speech in June 2018 declaring that a token is not a security once it becomes “sufficiently decentralized” and he invented factors to consider when making a “sufficiently decentralized” determination .
— Stuart Alderoty (@s_alderoty) June 13, 2023
CryptoLaw hosted a roundtable on June 14, along with colleague Jeremy Hogan and former SEC securities attorney; Marc Fagel, who worked at the agency for 16 years.
The Hinman Docs: All-star Legal Panel https://t.co/5I6xAI5H0B
—CryptoLaw (@CryptoLawUS) June 14, 2023
During the roundtable, Fagel agreed that the email did not contain actual bombshells relevant to the case, but he did highlight some potential conflicts of interest. He said on multiple occasions that he did not want to attribute motivations to Hinman, but added:
“I try to see both sides of the coin. So I don’t like to jump to the point that there is something unethical here, although we can all agree that there are some contentious issues here and some really disappointing conduct.”
Before and after working at the SEC, Hinman worked at a law firm called Simpson Thacher & Bartlett, which was a member of the advocacy organization Enterprise Ethereum Alliance, which tries to promote the use of Ethereum blockchain technology.
According to the watchdog group Empower Oversight Whistleblowers and Research, the group that initially filed the FOI request that led to the Hinman documents, Hinman “continued to receive millions of dollars from Simpson Thacher while he was working at the SEC.”
The implication, as expanded by Hogan during the panel, is that Hinman was essentially being paid to give Ether a free pass and say in his speech that Ether was not a security, which some people have previously referred to as “ETHGate.”
Hogan was of a similar opinion, suggesting that the emails did not contain much that Ripple could actively use in the case, but indicated that Hinman should be more concerned with the content of the emails rather than the SEC, especially when their first drafts of the speech they referred to it as the “Ether speech”.
Aether Reinforced Position
Deaton also said that he thinks the “speech papers are good for Ethereum” and “could also help ERC-20 tokens like Dragonchain”, which are governed by the Ethereum blockchain:
“If the SEC claimed that the network was decentralized enough, then those tokens have an even better fair notice argument than Ripple.”
This was something also referenced in comments from the Office of General Counsel, with the division sharing that it had “reservations about including a statement directly about ether in the speech” as “it would be difficult for the agency to take a different position on ether in the future”.
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