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Could the SEC Case Against Ripple Falter Over A Conflict Of Interest?

Could the SEC Case Against Ripple Falter Over A Conflict Of Interest?

Newly discovered documents could pose a major roadblock for the Securities and Exchange Commission (SEC) against Ripple if they prove a former commission official had a conflict of interest.

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The SEC has been embroiled in a legal battle against blockchain company Ripple (XRP) since 2020. The crypto company and senior executives Brad Garlinghouse and Christian Larsen sold XRP tokens as unregistered securities.

In a May 10 announcement, corruption watchdog Empower Oversight claimed that documents obtained under a Freedom Of Information request were suggested.

Former SEC Director of Corporate Finance William Hinman had a conflict of interest and should not have made a speech in 2018 in which he stated that Ether (ETH) and its transactions are not securities.
 


According to the non-profit watchdog, Hinman should have recused himself from speaking about Ethereum due to his undisclosed “direct financial interest” with the Simpson Thacher & Bartlett law firm, a member of the Enterprise Ethereum Alliance (EEA).

The EEA promotes the use of blockchain technology on the Ethereum blockchain.

Founder of legal news outlet Crypto Law lawyer John Deaton told his 198,000 Twitter followers on May 11 that Hinman’s potential compliance failure could jeopardize the SEC’s entire case against Ripple. Deaton said the case could be “game set and match” for Ripple if the conflict exists.


According to Law360, a legal news outlet, Hinman worked at Simpson Thacher before joining the SEC, then rejoined the firm in 2021.

Empower Oversight said that Hinman was receiving $1.5 million in retirement benefits from the law firm annually. At the same time, he worked at the SEC and alleged that he “had repeated contact with the law firm’s personnel.”

The organization noted that the SEC’s “Ethics Office explicitly told him not to have any contact with Simpson Thacher personnel.”
 


The organization requested the Office of the Inspector General of the SEC conduct a “comprehensive review of the SEC’s ethics officials” to determine whether Hinman had a conflict of interests. That review would include the following considerations:

(1) Understand the degree to which the conflict involving this former official exacerbated the perception that the SEC’s enforcement actions have selectively targeted some cryptocurrencies while giving others a free pass;

(2) Explain to the public how the SEC’s Ethics Office failed to ensure compliance with its clear directives effectively; 

and  Evaluate the SEC’s policies and procedures to identify ways to monitor compliance with ethics guidance more effectively.”

(3) Evaluate the SEC’s policies and procedures to identify ways to monitor compliance with ethics guidance more effectively.”

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This latest development in the case is an unexpected twist on top of former SEC official Joseph Hall’s February prediction that the commission would lose to Ripple based on the case's merits.

Many in the crypto industry have watched this case closely because the outcome will likely have massive implications. If Ripple wins, it will force the SEC to back off from its aggressive stance toward crypto. 

If the commission wins, it would almost certainly open the field to a bevy of new litigation against crypto companies. XRP is 19.2% down over the past 24 hours, trading at $0.41, according to CoinGecko data. (Cointelegraph!)
 

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