WASHINGTON – Empower Oversight is asking congressional oversight committees for the Securities and Exchange Commission (SEC) to hold the agency accountable for potential conflicts of interest at the agency with respect to its regulation of cryptocurrencies, and obtain an inspector general report that was in its “final stages” nearly one year ago. The letter comes on the heels of news that former SEC Chairman Jay Clayton will be nominated to become the U.S. Attorney for the Southern District of New York.
The letter, written by Tristan Leavitt, President of Empower Oversight, takes a deep dive into Empower Oversight’s work and findings which began more than three years ago on the conflicts of interest at the SEC related to cryptocurrencies. Clayton, along with former Division of Corporation Finance Director William Hinman, were key players in the questions raised by Empower Oversight.
Leavitt urged Congress to request the SEC Office of Inspector General report on its investigation into these matters, emphasizing the need for transparency, accountability, and impartial regulation of the cryptocurrency sector.
“If conflict of interest laws and regulations can simply be ignored, regulators can use their public office to financially benefit themselves and their associates while harming their competitors. Government regulators should not be picking winners and losers at all in a free market—much less in a manner that benefits themselves,” Leavitt wrote in the letter to Congress
Among the key concerns raised by Leavitt were:
- Unequal Application of Securities Law: The letter argues that the SEC applied securities laws inconsistently, particularly regarding Ether and XRP, creating uncertainty for investors and potentially harming competition in the cryptocurrency market.
- Hinman’s Financial Conflicts of Interest: The letter details Hinman’s ongoing financial interest in his former law firm, Simpson Thacher, which was heavily involved with the Enterprise Ethereum Alliance (EEA). This raises questions about Hinman’s potential bias towards Ethereum during his time at the SEC.
- Clayton’s Actions and Potential Influence: The letter highlights Clayton’s close ties to the financial industry and his interactions with Andreessen Horowitz, a venture capital firm heavily invested in Ether. This suggests Clayton may have been receptive to arguments favoring Ethereum’s regulatory treatment.
- Lack of Transparency and Ethics Oversight: The letter criticizes the SEC’s lack of transparency regarding meetings and documents related to these issues and calls for an investigation into the SEC’s ethics oversight procedures.
Specifically, the letter describes Hinman’s disregard for ethics guidance in his interactions with Simpson Thacher, despite his ongoing financial interest in the firm, and it details the efforts of the EEA, with involvement from Simpson Thacher and its clients, to influence the SEC’s stance on Ethereum, culminating in Hinman’s “free pass” speech declaring Ether not a security.
Leavitt also outlines in the letter Clayton’s engagement with the “Venture Capital Working Group,” led by Andreessen Horowitz and Perkins Coie (EEA counsel), which proposed a “safe harbor” for Ether specifically. In addition, it contrasts the SEC’s treatment of Ethereum with its lawsuit against Ripple, alleging XRP is a security, despite apparent similarities in the tokens’ operation.
Key excerpts from the letter:
“Over the past few years Empower Oversight has filed a series of Freedom of Information Act (‘FOIA’) requests for records involving former Securities and Exchange Commission (‘SEC’) Chairman Jay Clayton—whom President-Elect Trump has announced will be his nominee to be the U.S. Attorney for the Southern District of New York—and former SEC Division of Corporation Finance Director William Hinman, both of whom served from May 2017 until December 2020 at the SEC.”
“The SEC’s unequal application of a 90-year-old law to similarly situated crypto entities, initiated under Chairman Clayton—bringing enforcement actions against some while giving a free pass to another—removes any predictability for investors. Government regulators should not be picking winners and losers in a free market.”
“This has had a serious negative impact on the public’s perception of the SEC’s decision making. As the SEC’s top ethics attorney wrote to Hinman: ‘It’s . . . a serious optics issue – you can’t be seen to be granting special access to a firm you have a financial interest in.’”
“Pursuant to regulations, Minton also provided Hinman with initial training on his obligations under the criminal conflict of interest statute and the ethics regulations.27 As she later described in an email responding to Hinman seeking approval for a meeting including Simpson Thacher: ‘[Y]ou have a full financial conflict with your old firm, not just an impartiality one. [H]ence, you should not be having any meetings with your old firm, even group meetings.’ When Hinman requested a phone call to discuss the issue further, the ethics counsel emailed in response: ‘[Y]ou have a bar under the criminal financial conflict with Simpson [Thacher] because you have an ongoing financial interest in the firm. [M]eeting with them while having such a conflict is not permitted. As we discussed during your briefing – even calls with them are not permitted.’”
For a copy of the letter, click here.
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