Empower Oversight, a nonprofit organization committed to government accountability, is fervently urging Congress to release the Securities and Exchange Commission (SEC) inspector general report concerning the actions of former SEC Chairman Jay Clayton. This report is anticipated to shed light on the activities and decisions made during his tenure.
The Controversial Role of William Hinman
William Hinman, who served as the director of the SEC’s Division of Corporation Finance from 2017 to 2020, has been a focal point of scrutiny. Empower Oversight has raised concerns about potential violations of ethics rules by Hinman, particularly related to conflicts of interest. In May 2022, the organization submitted evidence to the SEC’s Office of Inspector General, prompting a thorough investigation. By February 2024, the SEC’s inspector general announced that the investigation was nearing completion. This report is crucial as it could provide substantial support for Empower Oversight’s investigation, especially before Clayton’s anticipated confirmation as the U.S. Attorney for the Southern District of New York.
Hinman’s Controversial 2018 Speech on Ethereum
One of the most contentious issues surrounding Hinman dates back to a 2018 speech where he declared that Ethereum’s digital token, Ether, did not qualify as a security. This assertion led to a significant surge in Ether’s market value and raised questions regarding possible financial conflicts of interest. Hinman’s statement, “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,” became a subject of intense debate.
Various external groups, including Consumer Action for a Strong Economy (CASE), have persistently advocated for the SEC to disclose the report. Pro-XRP lawyer John Deaton emphasized the need for transparency, stating, “TIME TO RELEASE THE REPORT @GaryGensler If we are going to move forward – we do so with complete TRANSPARENCY. If Gensler doesn’t release this report, Paul Atkins needs to do so immediately. @HesterPeirce and others should be calling for its release.”
XRP vs SEC: A Legal Battle
The ongoing legal battle between Ripple Labs and the SEC is another critical issue intertwined with the actions of Jay Clayton and William Hinman. On December 22, 2020, during the final days of the Trump administration, the SEC initiated a lawsuit against Ripple Labs. The lawsuit accused Ripple Labs, along with its co-founder Chris Larsen and CEO Brad Garlinghouse, of selling $1.3 billion worth of XRP cryptocurrency as unregistered securities.
In a detailed 22-page letter, Tristan Leavitt discussed SEC Commissioner Joseph Grundfest’s concerns about the SEC’s actions against XRP. Grundfest articulated, “The staff has articulated no material distinction between the operation of Ether and of XRP that is relevant to the application of the federal securities laws. Imposing securities law obligations on XRP while leaving Ether untouched raises fundamental fairness questions about the exercise of Commission discretion. Ether and XRP should be treated similarly.”
The call for transparency and equal treatment under the law remains at the forefront of this ongoing legal and ethical debate. As various stakeholders continue to push for the release of the SEC inspector general report, the implications for the cryptocurrency industry and regulatory practices are profound. The resolution of these issues could set significant precedents for how digital assets are regulated in the future.
