Ripple’s counsel has the most compelling line of attack on former SEC director William Hinman, whose 2018 speech sparked a rally in the price of ether. In an op-ed, Stu Alderoty criticizes the SEC for bullying, bulldozing, and bankrupting crypto innovation in the U.S.
In 2018, William Hinman stated that Bitcoin and Ethereum were not securities because they were sufficiently decentralized. And we are aware of the ongoing case against Ripple, in which the Securities and Exchange Commission (SEC) claims that XRP is a security.
Stu Alderoty claims that the decentralization criteria is nowhere to be found in the definition of securities and also in the three-part “Howey” test.
He writes that “decentralized” is not part of any legal test.
The Howey case laid out an “investment contract” test wherein it requires an investment of money in a common enterprise with an expectation of profit derived from the efforts of others.
Hinman was working with Simpson Thacher, a law firm that is a member of the Enterprise Ethereum Alliance (EEA), which is dedicated to promoting the commercial use of Ethereum. Because Ether is considered an XRP competitor, it immediately raised questions about Hinman’s role in voting to sue Ripple.
“..whether or not he knew of the EEA connection when he gave his speech, the SEC has not commented on what is–at the very least–the appearance of a conflict. It is doubtful the SEC would stay silent if a public company CEO were in a similar predicament,” Alderoty wrote.
In his most recent remarks, Alderoty argues that Hinman’s speech had tangible effects on the crypto markets. The SEC had countered the argument by claiming that the speech was the director’s personal views and not the regulator’s official position.
“Despite disclaimers that the speech was Hinman’s personal opinion and “not necessarily that of the Commission,” the market took Hinman’s speech to heart.”
Ripple Labs has been embroiled in a legal battle with the SEC since December 2020, alleging that Ripple executives used XRP tokens to raise funds for the company beginning in 2013, claiming it was an unregistered security.
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In addition, Empower Oversight, a nonprofit whistleblower organization, published SEC emails revealing conflicts of interest in Hinman’s role as an SEC director.
“Like a hammer wanting everything to be a nail,” Alderoty writes, “the SEC is keeping everything murky so it can argue that every crypto is a security.”
He expresses that the United States still desperately needs clear rules to protect consumers and market integrity, as Hinman’s speech “did nothing but muddy the crypto waters.”
