WASHINGTON – Empower Oversight is pressing the Office of the Inspector General at the Securities and Exchange Commission (SEC-OIG) to release a report on conflicts of interest by senior Securities and Exchange Commission (SEC) officials and the agency’s selective enforcement decisions on cryptocurrencies. SEC officials had indicated the OIG was “in the final stages of completing” its report five months ago. Empower Oversight also urged the OIG to address the potential conflicts of former SEC Chair Jay Clayton in its review.
Two years ago, Empower Oversight began litigation on a series of Freedom of Information Act (FOIA) requests, pressing the SEC for documents about the alleged conflicts and how the SEC mitigated or failed to mitigate the conflicts.
The SEC-OIG’s review appears to be spurred by Empower Oversight’s May 2022 letter requesting a comprehensive review of the SEC’s ethics officials’ failure to properly manage the conflicts of interests of SEC Director of the Division of Corporate Finance William Hinman. While the SEC OIG has not responded to the whistleblower organization’s letter, more than five months ago an SEC official claimed that the OIG had authorized the disclosure that the OIG was nearing conclusion of an investigation related to the financial conflicts of interest issues identified in the Empower Oversight letter.
In a letter to SEC Inspector General Deborah Jeffrey, Empower Oversight president Tristan Leavitt wrote that the organization was concerned that the OIG report may not be broad enough to address all the concerns it raised about multiple senior officials with potential conflicts.
“Empower Oversight has learned that the scope of SEC-OIG work on this matter may be limited to Mr. Hinman, excluding possible conflicts of interest involving former SEC Chairman, Walter ‘Jay’ Clayton. However, our referral to your office included information raising questions about potential conflicts involving both officials. Given the controversial regulatory decisions and enforcement actions during Mr. Clayton’s tenure, there has been public controversy over the extent to which Mr. Clayton may also have had conflicting interests related to Bitcoin and Ether that could impact his decisions related to the then-third largest cryptocurrency, XRP,” Leavitt wrote to Jeffrey.
He went on to write, “The decisions made by Mr. Clayton during his three and a half years as the SEC Chairman should be evaluated by the SEC-OIG to ensure that he properly avoided any financial conflicts of the sort that Mr. Hinman and the SEC’s Ethics Office apparently failed to avoid or mitigate. Failure to include those issues in the SEC-OIG’s upcoming report, or a subsequent one, would continue to erode the public’s faith in the ability of the SEC, its Ethics Office, and its Inspector General to identify, mitigate, and hold officials accountable for conflicts of interest like those that generated this controversy.”
For a copy of the full letter to Jeffrey, click here.
Background of Empower Oversight SEC FOIA efforts
Since August 2021, Empower Oversight has pressed the SEC for more transparency about the decision making on cryptocurrency issues at the SEC. The agency slow-walking and bad faith over nearly three years has forced litigation to pry documents loose from the agency.
In August 2021, Empower Oversight submitted a detailed FOIA request to the SEC seeking all communications between senior SEC officials, their former and future employers, and related entities regarding cryptocurrencies. Since then, Empower Oversight has been at the forefront of the battle for SEC transparency. In December 2021, Empower Oversight filed a lawsuit against the SEC in the Eastern District of Virginia seeking to compel the agency to provide responsive documents to the FOIA requests.
In May 2022, Empower Oversight sent a referral to the SEC OIG based on documents that raised questions about the failure of the SEC and its Ethics Office to properly manage Hinman’s conflicts of interest regarding cryptocurrency issues, contacts with his former law firm Simpson Thacher, and that firm’s interest in promoting one cryptocurrency over others.
In October 2022, Empower Oversight filed its opposition to the SEC’s motion for summary judgment in the ongoing FOIA lawsuit over documents related to conflicts of interest and selective enforcement in cryptocurrency cases.
The SEC had initially agreed to search for records of communications between SEC officials and promoters of certain cryptocurrencies using a specific list of names that the SEC asked Empower Oversight to provide. However, the SEC then promptly reversed course and had refused to search for those records for nearly two years since the August 2021 request, which is still the subject of ongoing Freedom of Information Act (FOIA) lawsuit against the SEC.
In Dec. 2022, Empower Oversight filed a new FOIA request regarding conflicts of interest and selective enforcement by former high-level officials regarding cryptocurrencies. The December 2022 request was an effort to counter the SEC’s bad faith gamesmanship in refusing to conduct searches using the search terms it solicited from Empower Oversight more than a year earlier. The December 2022 FOIA requests to the SEC sought communications between senior SEC officials and their former and future employers and related entities regarding cryptocurrencies by name.
Former senior SEC official William Hinman received millions of dollars in compensation from his former employer, Simpson Thacher, while helping guide the SEC’s enforcement decisions on cryptocurrencies. Simpson Thacher was part of a group that promoted the native cryptocurrency on the Ethereum network, Ether. Of particular interest is a June 14, 2018 speech where Hinman publicly declared that Ether was not a security while the SEC has claimed in enforcement actions that other similar cryptocurrencies were unregistered securities.
In May 2023, Empower Oversight filed a new complaint against the SEC in the United States District Court for the District of Columbia seeking to compel the SEC to comply with the December 2022 FOIA request.
The SEC turned over documents following the May FOIA lawsuit brought by Empower Oversight in the District of Columbia from a December 2022 FOIA request to the SEC. Pursuant to the FOIA request and the lawsuit, the SEC produced 324 pages of additional documents.
In September 2023, Empower Oversight requested through FOIA communications between Clayton, the former Securities and Exchange Commission (SEC) Chairman, and numerous people he may have interacted with regarding the agency’s improper handling of cryptocurrency enforcement decisions.
In March 2024, Empower Oversight continued to request documents through FOIA on Hinman and Clayton using new search terms based on findings from documents in previous FOIA requests.
On March 18, 2024, Empower Oversight filed a lawsuit against the SEC over its failure to comply with an additional Freedom of Information Act after the SEC delayed its searches by asking multiple rounds of clarifying questions and asking Empower Oversight to narrow its requests. Then the SEC failed for months to communicate with Empower Oversight about the May 2023 request. In January Empower Oversight proposed to the SEC a basic timeline for the SEC to provide updates on the progress of the request as well as a schedule for processing records. Yet the SEC was unwilling to commit to such a schedule, and nearly 9 months after the request still had not produced a single page.
In June 2024, Empower Oversight pressed the SEC for additional records regarding the public declarations that multiple cryptocurrencies were not a security by both William Hinman, the former director of the Corporate Finance Division, and Jay Clayton, the former Chairman of the SEC.