The newly released Hinman documents relevant to the ongoing legal battle between Ripple and the United States Securities and Exchange Commission (SEC) have shed light on internal divisions within the SEC and raised questions about its motives.
The Hinman documents pertain to internal SEC communications regarding a speech delivered by former director William Hinman in 2018. During the speech, Hinman said that Ether (ETH), one of the largest cryptocurrencies, should not be categorized as a security.
In an interview with Cointelegraph, crypto lawyer and founder of Hodl Law Fred Rispoli shared his thoughts on the recently released documents. According to Rispoli, the Hinman documents paint a picture of an agency more interested in expanding its jurisdiction than fulfilling its primary mission of protecting U.S. investors:
“These documents are substantively bad for the SEC but the optics are even more damaging. Taken together, they demonstrate an SEC that is clearly more concerned with expanding its turf rather than its near-ninety-year mission of protecting US investors. They show the revolving-door aspect of agency bureaucracy at its worst.”
He explained further: “For example, one of the unredacted documents showcase that the SEC’s Office of General Counsel recognized that crypto likely falls into an ‘other’ category — it’s not a security because there’s no controlling group (at least in the Howey sense), yet, like many other things (medication, credit cards) there may be a need for regulation to protect purchasers.”
The “Howey test” is a legal framework established by the U.S. Supreme Court in SEC v. Howey in 1946 to determine if a transaction qualifies as an investment contract and therefore falls under the definition of a security.
According to Rispoli, the core issue is that while cryptocurrencies may possess certain security attributes, their fundamental characteristics set them apart from traditional securities. Consequently, regulation is necessary but should not be entrusted solely to “power-hungry” securities regulators. He explained:
“Crypto may have some security attributes but its other attributes make it fundamentally different than securities. Hence, there is a need for regulation but clearly not from the power-hungry SEC. The SEC also recognizes this and is scrambling to protect and expand its jurisdiction even in the absence of Congressional authorization.”
The release of the Hinman documents has opened up a Pandora’s box of potential consequences for Ripple and the wider crypto industry. According to Rispoli, “Now that these documents are public, it demonstrates the rabbit hole goes much, much deeper and further document requests will be issued soon, be it from other litigants, Congressional investigators, FOIA requests, etc.”
Rispoli speculates that additional documents may be requested that shed light on the events surrounding Hinman’s speech, as well as highlight the potential involvement of various entities and individuals in shaping the narrative. This includes exploring SEC staff communications about why Hinman disregarded their recommendations to exclude Ether from his speech. Additionally, the content of communications between third parties like Vitalik Buterin and Hinman — conducted via SEC email, private email and text about coaching Hinman in describing the Ethereum project — could be requested.
Concerning how the released documents could affect other ongoing or future legal battles within the crypto industry, Rispoli stated, “These documents will be helpful for the fair notice defense claims in the Dragonchain and Coinbase cases, and really any case involving a token issued on the Ethereum Network." He added:
"They also help on the intangible level of persuading both judges and juries to instinctively dislike and distrust the SEC for its very questionable practices that seek to deliberately make the crypto investing regulatory framework more confusing and uncertain.”
Related: Hinman documents suggest SEC is the wrong agency to govern digital assets, crypto lawyer says
Rispoli concluded that his law firm, Hodl Law, sued the SEC in the U.S. District Court for the Southern District of California to establish that Ether and the Ethereum Network “are not securities according to federal law." The SEC has sought to dismiss the case, arguing that it is not obligated to disclose its stance to the public. However, Hodl Law intends to present the Hinman documents to the judge to highlight the SEC’s alleged disregard for good faith and its departure from legal obligations.
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