Press Release
May 10, 2022

WASHINGTON — Empower Oversight sent a letter to the Office of the Inspector General of the Securities and Exchange Commission (SEC-OIG) requesting a comprehensive review of the SEC’s ethics officials to properly manage SEC official William Hinman’s potential conflict of interest regarding cryptocurrency issues. The letter describes in detail instructions that the SEC’s Ethics Office provided to Mr. Hinman and actions by Mr. Hinman that are inconsistent with the instructions.

Specifically, records that were disclosed to Empower Oversight in response to an August 12, 2021, FOIA request show that the SEC’s Ethics Office cautioned Mr. Hinman that he had a direct financial interest in his former law firm, Simpson Thacher, and thus, he needed to recuse himself from any matters that would affect the firm; and, lest he may have misunderstood its position, the Ethics Office explicitly told him not to have any contact with Simpson Thacher personnel. Further, the Ethics Office provided Mr. Hinman with a draft memorandum, which was to be issued under his name, that established a screening arrangement to ensure that he complied with his obligation to recuse himself from certain matters with which he had a financial interest, or a personal or business relationship.

In contrast to the instructions from the SEC’s Ethics Office, the records disclosed to Empower Oversight and other information tend to show that Mr. Hinman failed to disclose Simpson Thacher’s—and by extension his—direct financial interest in the Enterprise Ethereum Alliance, which describes itself as an “industry organization whose objective is to drive the use of Enterprise Ethereum” and its cryptocurrency, Ether, during a speech he gave during his tenure at the SEC. In his speech, he opined that Ether is not a security, stating that “based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.” Ether’s value rose immediately after Mr. Hinman’s speech.

Additionally, Mr. Hinman—who annually received more than $1.5 million in retirement benefits from Simpson Thacher while he was employed by the SEC—had repeated contact with the law firm’s personnel. These contacts included the referral of a business prospect and participation in at least one exclusive conference—sponsored in part by Simpson Thacher personnel—designed to provide insiders with special access to high-level SEC officials, which could burnish the law firm’s reputation among clients and potential clients. The records do not, however, reveal efforts by Mr. Hinman to dissuade his former law firm colleagues from contacting him, nor do they demonstrate that the SEC’s Ethics Office monitored his compliance with its directives.

“The SEC-OIG should conduct a comprehensive review of these circumstances in order to:

“(1) Understand the degree to which the conflict involving this former official exacerbated the perception that the SEC’s enforcement actions have selectively targeted some cryptocurrencies while giving others a free pass;

“(2) Explain to the public how the SEC’s Ethics Office failed to effectively ensure compliance with its clear directives; and  

“(3) Evaluate the SEC’s policies and procedures to identify ways to more effectively monitor compliance with ethics guidance

“Directives without compliance monitoring and sanctions for noncompliance are not meaningful; they are window dressings. A comprehensive SEC-OIG report could increase transparency and enhance public trust by recommending meaningful improvements to the ethics policies and procedures at the SEC,” said Jason Foster, Founder and President of Empower Oversight.

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