Katherine Ross

A Virginia Judge overseeing Empower Oversight’s 2021 case against the SEC sided with a 2022 motion from the regulatory agency — with a few caveats.



Judge Rossie D. Alston Jr. said government agencies must conduct a “reasonable search for responsive records” in FOIA requests.



In a few of <a href="https://empowr.us/empower-oversight-sues-sec-for-access-to-foia-documents-amid-crypto-conflict-of-interest-concerns/">Empower’s</a> requests, the court found that the SEC’s “searches were not ‘reasonably calculated to uncover all relevant documents.”



The documents requested by Empower are related to communications between Marc Berger, Jay Clayton and William Hinman while they were at the SEC.



Marc Berger was acting enforcement director at the SEC until <a href="https://www.sec.gov/news/press-release/2021-5">2021</a>, bringing the SEC’s <a href="https://www.sec.gov/news/press-release/2020-338">complaint</a> against Ripple to light in 2020.&nbsp;



Jay Clayton led the SEC until 2020, then proceeded to <a href="https://www.prnewswire.com/news-releases/one-river-digital-asset-management-welcomes-jay-clayton-kevin-hassett-and-jon-orszag-to-newly-formed-academic-and-regulatory-advisory-council-301257503.html">sign</a> on with One River Asset Management’s advisory council.&nbsp;



<a href="https://blockworks.co/news/former-sec-chairman-turned-crypto-advisor-defends-move-to-private-sector">Clayton told Blockworks last year</a> he didn’t expect to be involved with firms in the cryptocurrency space after he left the SEC.



William Hinman — who is at the center of the <a href="https://blockworks.co/news/sec-hinman-eth-not-security">Hinman speech documents that Ripple requested</a> in its court battle with the SEC — <a href="https://www.sec.gov/news/public-statement/statement-bill-hinman-120420">left</a> the regulatory agency in 2020 and joined Simpson Thacher &amp; Bartlett as a senior adviser.&nbsp;



The SEC claimed that it complied with Empower’s FOIA requests for documents relating to SEC personnel’s communications with Enterprise Ethereum, One River Asset Management and Simpson Thacher and Bartlett. The watchdog specifically requested documents from May 2017 through December 2020.



The SEC did not, however, fully provide all of Empower’s requests with a “reasonable search” the court ruled, despite the judge deciding that the regulatory agency&#8217;s motion for summary judgment was granted in part.



“Defendant has offered no explanation why it confined its search to only a part of Plaintiff’s request, which indicates that the search was not conducted ‘in a manner reasonably certain to uncover all responsive records,” said a memorandum opinion filed on Wednesday.



“To be sure, agencies need not conduct backbreaking inquiries to find every possible responsive document. A search must be ‘reasonably calculated to uncover all relevant documents,’” the filing states.



The judge also ruled that both the SEC and Empower must provide the court with a status update on July 19.



This is not Empower’s only case against the SEC in regard to FOIA requests. In May, <a href="https://blockworks.co/news/watchdog-files-sec-lawsuit">Empower filed another complaint</a> — this time in a DC court — requesting documents from the agency in regards to the XRP lawsuit and Hinman documents.



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SEC must conduct ‘reasonable’ record searches in crypto conflict of interest case

Sebastian Sinclair

<div id="highlights-block_635253805e048" class="highlights">
 <ul>
 <li>The documents — internal SEC drafts and emails — relate to a speech given by a former agency director in 2018</li>
 <li>The SEC fought hard to resist turning over the files, though their contents remain under wraps for now</li>
 </ul>
 
</div>



Ripple Labs, stewards of the XRP token, has had a small win in its long-running case with the SEC, obtaining key documents that may help in its fight against the regulator.



After 18 months and six court orders, Ripple has its hands on what has become known as the Hinman documents — internal SEC drafts and emails relating to a former director’s speech more than four years ago.



The speech, given by William Hinman, who at the time was Director of the SEC’s Division of Corporation Finance, was notable as it seemed to declare ether was not considered a security by the agency.



Ripple’s general counsel, Stuart Alderoty, <a href="https://twitter.com/s_alderoty/status/1583229474681675776?s=20&amp;t=mxwiOHdVZ4yddTAyTqar1Q" target="_blank" rel="noreferrer noopener">tweeted Thursday</a> that while the documents relating to the 2018 Yahoo Finance All Markets Summit speech remain confidential for now, at the request of the regulator, “it was well worth the fight to get them.”



Ripple’s defense is based on the argument that if ether was not considered a security back then, why should XRP — which is arguably more like a currency — be subject to US securities law?



Ripple has repeatedly sought the documents through discovery, while the SEC attempted to withhold them on at least three occasions. The SEC’s viewpoint were overruled, first in February and then in April by Magistrate Judge Sarah Netburn in the Southern District Court of New York.&nbsp;



<a href="https://cms.blockworks.co/xrp-price-jumps-9-as-judge-overrules-sec/" target="_blank" rel="noreferrer noopener">Judge Analisa Torres</a> once again ruled against the SEC’s attempts to withhold the documents for the third time late last month. The price of XRP lept by more than 9% on the news. XRP was last seen trading at $0.44, down 1.8% over a 24-hour period.



“I’ve always felt good about our legal arguments and I feel even better now, Alderoty said in his tweets. “I always felt bad about the SEC’s tactics and I feel even worse about them now.”



<h3 class="wp-block-heading">Crypto’s watershed moment</h3>



While the case continues, the outcome of the legal sparring between the two could have wider ramifications for the industry as it may establish precedence over how crypto is regulated and treated as either a security or a commodity.



The SEC, meanwhile, has been arguing — ever since it filed suit in 2020 — that Ripple and two of its executives, former and present CEOs Brad Garlinghouse and Chris Larsen, violated securities laws in 2013 when they sought to raise funds without first registering with the agency.



Blockworks attempted to contact the US securities regulator to ask it to comment on the development but did not receive a response by press time.&nbsp;



Ripple has repeatedly denied the allegations, which the regulator argues raised more than $1.3 billion in an XRP token sale more than nine years ago.



“Ripple denies it engaged in any offering of securities; denies the inaccurate characterization of the legal advice Ripple received regarding XRP; and denies that it engaged in a single ‘offering’ of XRP,” Ripple said in a filed <a href="https://storage.courtlistener.com/recap/gov.uscourts.nysd.551082/gov.uscourts.nysd.551082.51.0.pdf" target="_blank" rel="noreferrer noopener">court document</a> back in 2020.



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SEC Hands Over Key Documents in Case Against Ripple

Casey Wagner

<div id="highlights-block_6255d8e219aeb" class="highlights">
 <ul>
 <li>SEC motion to clarify emails and speech relating to ethereum is denied by district judge</li>
 <li>Emails show former SEC director was warned about potential conflicts of interest over his relationship with his prior employer</li>
 </ul>
 
</div>



Days after hundreds of emails between SEC top officials were released, a judge has ruled the regulator cannot edit or clarify the contents for the upcoming Ripple Labs trial.&nbsp;



The contents of the emails could prove crucial if they show the SEC acted inconsistently by accusing Ripple Labs executives of securities violations for issuing the XRP token after ruling that rival cryptocurrency ether was not a security.



Empower Oversight, a nonprofit whistleblower organization, last week released more than 200 emails between current and former SEC employees. It claims the emails prove there were conflicts of interest associated with how the SEC selected enforcement actions against digital asset companies, specifically the agency’s decision not to view ethereum the same as XRP.&nbsp;&nbsp;



The emails, which Empower Oversight received from a Freedom of Information Act request, specifically relate to William Hinman. Hinman served as director of the SEC’s division of corporate finance from May 2017 to December 2020.



Prior to his SEC appointment, Hinman worked at Simpson Thacher, a law firm that sits on the Enterprise Ethereum Alliance, which is dedicated to promoting the commercial use of Ethereum. Since leaving the SEC, Hinman has returned to Simpson Thatcher.



The <a href="https://empowr.us/wp-content/uploads/2022/04/2022-03-25-SEC-Responsive-Records-compressed.pdf" target="_blank" rel="noreferrer noopener">emails</a>, mostly from Shira Pavis Minton, the designated agency ethics official at the SEC, warn Hinman that he is not to engage in any SEC matters that could impact Simpson Thacher due to his financial interest in the firm. He was also advised not to meet with anyone from Simpson Thacher.



Hinman met with Josh Bonnie, a partner at Simpson Thacher, several times after being warned about the conflict of interest, Empower Oversight said in a <a href="https://empowr.us/empower-oversight-obtains-additional-documents-shedding-light-on-potential-cryptocurrency-conflicts-of-interest-within-the-sec/" target="_blank" rel="noreferrer noopener">statement</a>. The former SEC director also met with the co-founders of and investors in Ethereum ahead of the speech he gave in 2018 declaring ether a token, not a security. The speech had a strong positive impact on the price of ether and potentially benefited Simpson Thacher as a result, Empower Oversight argues.



“This raises questions as to whether Hinman fully disclosed Simpson Thacher’s role in Ethereum from SEC ethics officials and whether they would have approved the meetings or his speech if he had,” Empower Oversight’s statement said. 



If the Ripple Labs team can prove that leaders at the SEC had an interest in promoting and protecting ether over other, similar tokens, it could lead to a win, some speculate.



“This type of conflict of interest within a critical financial industry regulator is highly volatile in terms of undermining an already rocky public trust of government administration,” said Michael Fasanello, chief compliance officer of financial services firm LVL. “Doubt raised from these internal documents could affect not just the Ripple case, but other cases involving digital assets as well.”



The team at Empower Oversight agrees. The nonprofit filed a lawsuit against the SEC in December 2021 over Hinman’s conflict of interest with Simpson Thacher. The suit also mentions that Marc Berger, the former head of the SEC enforcement division and a main initiator of the lawsuit against Ripple Labs, also left the SEC for Simpson Thacher.



Others are less certain about how the emails might play into the ongoing Ripple suit, if at all.



“The SEC always picks and chooses. It can&#8217;t sue everyone all at once,” David Tawil, president of crypto hedge fund firm ProChain Capital, said. “There has to be more evidence relating to Ripple specifically.”



Regardless, the contents of the emails and Hinman’s infamous 2018 speech will be fair game in the upcoming trail. A judge has denied the SEC’s motion to review or clarify contents from the emails and speech, XRP attorney James K. Filan <a href="https://twitter.com/FilanLaw/status/1513647538074800130?s=20&amp;t=WeX-XWuxf0QKteO1J7zeHw">announced on Twitter</a> Wednesday.



“The SEC’s assertion that the Speech was intended to communicate [the SEC division of corporation finance’s] approach to regulating digital asset offerings is inconsistent with the SEC’s and Hinman’s previous position that the Speech was intended to and did reflect his personal views,” District Judge Analisa Torres’ decision read. 



“The SEC seeks to have it both ways, but the Speech was either intended to reflect agency policy or it was not. Having insisted that it reflected Hinman’s personal views, the SEC cannot now reject its own position.”



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