Following 16 months of intense pre-trial litigation, countless hours in court and over 600,000 documents reviewed by both sides, the case that’s being billed as “the cryptocurrency trial of the century” could all come down to one speech made by a former Securities and Exchange Commission official four years ago.
That case, of course, is the lawsuit brought in late 2020 by the SEC against payment settlement company, Ripple. The SEC says Ripple violated securities laws when it failed to register with the agency sales of its native cryptocurrency token, XRP, that helped finance its platform and facilitate payments on Ripple’s network.
At the heart of the commission’s case is a contention that XRP was being sold by Ripple and its top executives as an illegal and unregistered security. The commission is seeking billions of dollars in damages.
In court documents, Ripple’s lawyers point out that both Clayton and Hinman have had ongoing business dealings with firms that support the adoption of Ethereum since they left the SEC. Evidence from depositions shows that top executives of a company that has ties to Ethereum met with key SEC officials, including Hinman himself, as the commission was developing its regulatory approach to crypto and weighing the Ripple lawsuit.
While both Clayton and Hinman have declined requests for comment, in depositions and in past comments they have vehemently denied any wrongdoing. Both have said their decision to sue Ripple was based on the law – namely the Supreme Court’s 1946 Howey Test that is used to determine what makes something an investment contract, aka, a security.
In continuing the litigation, SEC attorneys working for Genlser have made the same argument: That the XRP sales were clearly linked to the buildout of Ripple’s platform, classifying them as an investment contract with Ripple itself.
One thing is certain, legal experts say: The outcome of the case will set the stage for crypto regulation moving forward. For starters, it could settle the turf war between regulatory agencies like the Commodities Futures Trading Commission, the Consumer Financial Protection Bureau and the SEC, all vying for jurisdiction in the space.
The SEC has at various times argued that the speech – classifying Bitcoin and Ether as legally unregistered securities – was Hinman’s opinion, a move legal experts say to contest that the agency has a specific ruling on XRP’s competing cryptos, Bitcoin and Ether.
However, as the lawsuit has progressed, documents show that SEC attorneys had a much bigger hand in writing the speech than was previously known.
According, to documents reviewed by the court and by FOX Business, no fewer than 68 drafts of Hinman’s speech were written before it was delivered. New documents obtained recently by Washington, D.C.-based whistleblower group Empower Oversight revealed the recipients of those drafts to be around 30 people including staffers in the Office of the General Counsel, the department of Enforcement, Hinman’s own Division of Corporation Finance, and staffers in the office of Chairman Jay Clayton among others.
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