June 13 marked a significant day for the crypto community as the long-awaited Hinman documents were finally unsealed and made available to the public and shared perspective on the classification of Ethereum. These documents shed light on a crucial speech delivered in 2018 by Bill Hinman, the former director of the US SEC corporation finance division.
Hinman’s speech caused ripples in the crypto world as he stated that Ethereum, one of the largest cryptocurrencies, should not be considered a security.
However, the newly revealed Hinman documents, which comprise internal communications within the SEC, provide a comprehensive view of the agency’s discussions leading up to and following the speech.
Stuart Alderoty, Ripple’s chief legal officer, took to Twitter to express his thoughts on the unsealed documents. He revealed that the SEC’s lawsuit against Ripple and seven court orders finally allowed sharing behind-the-scenes information, including emails and drafts of the speech.
According to Alderoty, the documents show that Hinman disregarded multiple warnings and included analysis without any legal basis. Critics argue that the speech was divorced from the traditional Howey factors used to determine securities, exposed regulatory gaps, and would lead to confusion in the market.
Despite Hinman claiming that the speech reflected his personal views, it was treated as guidance by both him and the SEC. Even Jay Clayton, the then-chair of the SEC, publicly referred to it. Although the SEC’s stance on the speech’s significance has been inconsistent during litigation, it remains on the agency’s website.
The unsealed documents also shed light on the concerns raised by senior SEC officials during the drafting process. The head of Trading and Markets (T&M) expressed worries about the extensive list of factors and the potential confusion it could create.
T&M urged Hinman to tie his newly invented factors more closely to the established Howey analysis, but these suggestions were disregarded.
The Office of General Counsel (OGC) and T&M also found fault with Hinman’s inclusion of a factor that they deemed legally irrelevant. Additionally, they noted that he skipped over the threshold question of whether a digital asset meets the legal standards of a security, focusing instead on whether SEC oversight would be beneficial.
The Debate Over Ethereum: To Regulate Or Not To Regulate?
The unsealed documents reveal that on June 4, Hinman did not intend to regulate Ethereum as a security. He planned to discuss this with Ethereum co-founder Vitalik Buterin to confirm their understanding.
However, on June 12, the OGC expressed reservations about specifically mentioning Ethereum in the speech, fearing it would limit the agency’s future positions. Nevertheless, Ethereum remained as a cited example.
In light of these revelations, many believe that the speech should be removed from the SEC’s website immediately. Calls for an investigation into the factors influencing Hinman, the disregard for conflicts of interest, and the SEC’s promotion of the speech despite anticipating confusion are growing.
Furthermore, there are demands that Hinman’s speech should not be referenced in future discussions regarding token securities, emphasizing the need for strict adherence to existing laws and regulations by regulatory authorities.
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