Watchdog Files SEC Lawsuit Seeking Documents Related to XRP, ETH

Did former SEC officials have crypto-related conflicts of interest when they were at the commission?

Empower Oversight, a watchdog agency, is suing the SEC to comply with Freedom of Information Act requests that the agency filed with the SEC.

According to the lawsuit, the requested records will allow Empower to see whether or not there were multiple conflicts of interest that were crypto-related, specifically with a former director of the SEC’s Corporation Finance Division – William Hinman – and former SEC Chair Jay Clayton. 

Both Clayton and Hinman have since left the SEC, with Hinman joining Simpson Thacher & Bartlett as a senior adviser and Clayton joining Sullivan & Cromwell as a senior policy adviser.

The lawsuit alleges that Hinman received a pension from Simpson Thacher while at the SEC, linking back to a 2021 Insider report. While Hinman was at the SEC, the law firm was an Enterprise Ethereum Alliance member. 

In a Yahoo Finance All Markets Summit speech in 2018, Hinman declared that “the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”

“After his declaration, Ether’s value rose significantly,” the lawsuit states. “That same month, the SEC filed a lawsuit against one of Ethereum’s rivals, Ripple, alleging that its XRP cryptocurrency was a security, such that the offering and sales of XRP violated federal securities law.”

The speech has been part of Ripple’s ongoing case with the SEC, and documents surrounding the speech were confidentially released to Ripple last October. 

The nonprofit whistleblower agency has filed other FOIA requests in relation to possible conflicts of interest. In 2022, it released 200 emails last April that focused on correspondence between Hinman and SEC personnel. 

But Hinman isn’t the only former SEC official with alleged conflicts of interest. 

Clayton, who helmed the SEC from 2017 to 2020, is also mentioned by Empower. 

“As another example, former SEC Chairman Jay Clayton publicly stated while at the SEC that Bitcoin was not a security,” it states. “Shortly after leaving the SEC, Clayton joined One River Asset Management, a cryptocurrency hedge fund that focuses exclusively on Bitcoin and Ether.”

Last year, Clayton told Blockworks that he didn’t expect to be involved with digital asset companies after he left his SEC post. 

This is not the first time that Empower has taken the SEC to court over FOIA requests. According to the legal document, “Empower Oversight filed a complaint in the Eastern District of Virginia” in December 2021. 

“The SEC’s failure to provide any transparency on this issue is making a bad situation look even worse. We’re approaching two years since Empower Oversight made its initial FOIA request, and a year and a half since our first lawsuit. Yet the SEC has consistently stonewalled any attempts to shed light on these clear conflicts of interest at the agency,” Tristan Leavitt, President of Empower Oversight, said in a statement. 

Empower is pursuing that the SEC conduct “legally sufficient searches” to fulfill Empower’s FOIA requests and award attorney fees and “costs incurred in this action.”

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