SEC Regulator Calendar Shows Alleged Bias in Case Against XRP/Ripple
Some really good enterprise reporting from Fox Business News reporter Charlie Gasparino suggests serious partisanship and bias in the Security and Exchange Commission’s decision to go after XRP and Ripple.
According to Gasparino, former SEC Director of Corporate Finance William Hinman’s official calendar over his four years of service shows a series of meetings between him and XRP’s biggest competitor, Ether, to discuss industry regulation, which XRP alleges shows Hinman was playing favorites.
This is all part of the larger Ripple lawsuit against the SEC, the outcome of which observers say could determine the direction and scope of crypto regulation going forward.
The meeting schedule of a former official of the Securities and Exchange Commission provides a detailed roadmap into the agency’s thinking as it began to weigh how best to reign in the burgeoning digital-asset business, but it could also buttress the growing sentiment that Wall Street’s top cop unfairly targeted a leading crypto outfit in its crackdown.
From 2017 through 2020, Hinman was at the center of the agency’s crypto regulation efforts under former SEC chair and Trump appointee Jay Clayton. During those years, the commission began to navigate its regulatory authority over the business, which was growing exponentially and posing problems for government officials worried the anonymous nature of the blockchain would finance illicit activities.
The documents were turned over to XRP investors Stuart Young and Andrew Forbes as part of a Freedom of Information Act request they submitted earlier this year.
Both men are part of a class-action lawsuit filed against the SEC in a federal court in the Southern District of New York.
The class action takes issue with one of the SEC’s largest crypto enforcement actions to date: Its December 2020 case against Ripple Labs over what the SEC contends is the company’s unregistered sales of XRP tokens to investors.
The Ripple case culminated a frenzy of crypto enforcement activity by the Clayton SEC, which brought 87 cases, mostly against outfits that failed to register their digital coins with the commission. In late 2020, on Clayton’s final day as SEC chair, the SEC sued Ripple and its top executives for selling XRP to investors as an unregistered security.
Ripple vehemently denies the charges, stating that XRP is not a security, but rather, a currency similar to rivals bitcoin and ether. Like them, it is used to facilitate payments on a decentralized platform. Ripple continues to fight the case now being litigated by lawyers under President Biden’s SEC chair, Gary Gensler.
While the outcome of the Ripple case remains uncertain, industry observers say the decision will likely shape the future of crypto enforcement. An SEC victory could give the agency carte blanche in regulating digital coins, meaning other unregistered cryptos like Ethereum’s ether could face similar scrutiny.
A loss would impose limits on how much the SEC can crack down on tokens it believes are in violation of law.
Maybe the most controversial part of the class-action suit involves what the XRP holders believe is the SEC’s motivation in suing Ripple. XRP holders contend the SEC met regularly with industry officials associated with XRP’s biggest competitor, ether, to discuss crypto industry regulation. Hinman’s schedule entries serve as evidence the commission was playing favorites, they say, as does the name of another big XRP competitor listed, the aforementioned Satoshi Nakamoto of Bitcoin, FOX Business has learned.
Both Hinman and Clayton, the suit states, are now in private practice and are advisers to entities that invest in bitcoin and ether, and were possibly swayed into filing civil charges against Ripple by some of its competitors — charges both have categorically denied. But XRP holders say details of Hinman’s meeting schedule indicate that purveyors of rival digital coins had a hand in the agency’s regulatory decision-making.
"The calendar entries demonstrate that Ethereum founders and investors had exclusive access to the leadership at the SEC," Deaton told FOX Business. "It was a very exclusive club and Ripple and XRP were not in it."
Adding a moment of comedy to this whole saga, Gasparino’s report includes how Hinman and the SEC got punked when one of the relevant meetings was with a Satoshi Nakamoto impersonator.
But this is serious business. The industry has for years called for regulatory clarity, while the SEC has simply asserted its authority and engaged in regulation by enforcement. Given the evidence we are seeing of wildly partisan and biased motivation in a variety of other government enforcements – on Wall Street and in the FBI and Justice Department – this smacks more of the rule of men rather than the rule of law.
The crypto industry needs the freedom to grow and regulatory clarity. We are not getting it.