A federal judge from Manhattan has Wall Street’s top policeman of “hypocrisy” over its litigation tactics in a trial that’s being described as”the blockchain trial.
The comment is made after U.S. Magistrate Judge Sarah Netburn has ruled against an appeal from the Securities and Exchange Commission in its suit against cross-border payment firm Ripple Labs.
The SEC has accused the cryptocurrency platform of illegally releasing an unregistered security XRP to expand their business, and making insiders wealthy.
The SEC wants to protect secret documents related to a talk given by an ex- SEC official in the year 2018 when he sought to clarify the still-in-the-near-future cryptocurrency market.
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Cryptocurrency prices were rising on Tuesday morning, with Ethereum reaching the mark of $3,000 on the first occasion in 2 weeks. (REUTERS/Dado Ruvic/Illustration / Reuters)
The corporate head of finance, William Hinman, argued in the speech that all digital currencies apart from bitcoin and ether are likely to be illegal and not registered securities that could be subject to SEC actions. A few days later the speech, the SEC charged Ripple with selling XRP tokens that were not registered.
In the court case, the SEC originally stated that the speech was the view of one official and was not intended to provide market direction from the Commission. It has altered its position on the subject of Hinman’s speech after Judge Netburn ordered all documents related to the development of the speech to be given to the judge.
The SEC stated that the speech and its drafts were not just Hinman’s view, but the view that was issued by the Division of Corporation Finance. Division of Corporation Finance, therefore they are covered under attorney-client privilege, and therefore should remain private. The evolving interpretation of the SEC’s characterization of the Hinman speech angered Netburn and she ruled on Wednesday that SEC must hand over the documents to the hands of the courts, rejecting the agency’s request for attorney-client confidentiality and making a surprisingly brutal review of the motives of the agency.
“The hypocrisy in arguing to the court, on the one hand, that the speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency and, on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his speech, suggests that the SEC is adopting its litigation positions to further its desired goal and not out of a faithful allegiance to the law,” Netburn declared.
An SEC spokesperson did not have any comments. Ripple had no comment. Bill Hinman could not be reached for comment.
Ripple has claimed Hinman’s drafts were given to several individuals from the SEC to get their opinions and will expose the misguided thinking of the commission filing the lawsuit two years later, which was the final official action by Trump SEC chairman Jay Clayton.
Bill Hinman, the former director of corporate finance in the U.S. Securities and Exchange Commission. (U.S. Securities and Exchange Commission)
The replacement for Clayton, Biden appointed Gary Gensler, who continues to litigate the case and if it’s successful, could have a wide-ranging regulatory impact on the crypto industry worth $1 trillion.
The SEC’s authority as a statutory agency for crypto is a mystery but a victory on this Ripple matter could clear possibilities for future SEC enforcement. However, the Ripple victory would be an important setback for Gensler’s efforts to clamp down on what he’s referred to as”the “wild west” of investing.
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Lawyers from Ripple examine Hinman’s speeches’ drafts along with other relevant material as crucial evidence that may also show that the SEC wrongly targeted it to take enforcement actions.
There is one thing that is certain Hinman’s documents surrounding his speech are significant for both parties. SEC lawyers are fighting to block Ripple from receiving documents based on privilege, even though they have altered their justification. Personal opinions aren’t generally protected by such rigid guidelines regarding privilege. However, when Ripple testified against Hinman on August 20, 2021, Ripple signed an affidavit that stated the speech was solely his own opinion.
Gary Gensler, chair of the Securities and Exchange Commission. Gensler continues to fight the matter, which should it be successful, could be a major regulatory issue for the crypto industry worth $1 trillion. (Bill Clark/pool/AFP via Getty Images / Getty Images)
Netburn’s latest ruling denied an SEC modification to the argument that Hinman was not merely expressing his personal opinions in support of an argument for the government, thus maintaining some degree of privacy.
The legal dispute regarding Hinman drafts started in January the month of January when Judge Netburn required the SEC to hand over additional files to the courts as she considered whether Ripple could get access to the Hinman drafts.
The SEC is likely to file an appeal against Judge Netburn’s decision in Federal District Court Judge Analisa Torres. It has 12 days complete the appeal before the documents are an official record. After an appeal has been filed in the appeal and Ripple has made an objection against the request, Torres makes a definitive decision on the release.