The crypto industry in the US is facing the biggest challenge in the history of its nascent existence. After steadily ramping up anti-crypto rhetoric and enforcement of securities laws in recent years, the US Securities and Exchange Commission (SEC), led by Chairman Gary Gensler, has filed civil lawsuits against the largest existing crypto exchanges – Binance and Coinbase – during the week of June 5, 2023.
The legal action removed any doubt about the regulator’s commitment to what many – even dissenting SEC commissioners – have called a “regulation through enforcement” approach to the industry. However, the SEC’s hard line came under scrutiny on June 13 when, following a court-ordered release, a wealth of digital records shed light on the organization’s wavering thought process on industry regulation, highlighting potential conflicts of interest related to the former SEC director came to light. William Hinman and a clear inconsistency in the body’s mind about applying existing securities laws to digital tokens.
The Hinman emails sparked a firestorm of debate in online spaces among the Web3 community and included calls from Ripple, one of the cryptocurrency entities the SEC is battling with, to investigate the agency. Some have further speculated that Ripple, along with Coinbase and Binance, could use the documents to their advantage in court.
Hinman emails: Much ado about nothing?
Ripple’s executive team has, unsurprisingly, been very vocal about their displeasure with the contents of the declassified documents, claiming that the former SEC director’s comments should no longer be taken into account. seen as legitimate when considering the status of cryptocurrencies as securities.
Brad Garlinghouse, Ripple’s current CEO, also recently took to Twitter and wrote, “Seeing how deeply the SEC has weaponized the lack of regulatory clarity through enforcement action since this speech was made, it’s no surprise that we can bluff their claims of ‘just coming in and registering’ as nothing but bad faith.”
It is absolutely unscrupulous that a regulator – when faced with so much criticism for what he was about to say / how he put together this bogus “test” in the first place – decided to go ahead anyway and throw an entire industry into chaos. to deposit. https://t.co/9qzKOiPWsA
— Brad Garlinghouse (@bgarlinghouse) June 13, 2023
But do legal experts see any credence in the idea that these documents could be useful in court?
“I think so,” said Andres Munoz, an intellectual property and commercial litigation attorney at Romano Law, speaking to nft now. “[Ripple] could use this to their advantage. If the SEC’s determination that XRP was a security was based on, say, the rationale outlined by Hinman in his statements, then Ripple could use that internal commentary to show that the SEC’s analysis is flawed.”
Munoz, who handles trademark and intellectual property issues related to NFTs, and whose firm Web3 projects advises on the regulatory landscape, also notes that Hinman’s comments may not be enough for crypto companies to gain a legal foothold against the claims. from the SEC, depending on how the regulatory body presents its decision-making process in classifying XRP (Ripple’s native cryptocurrency) and others as a security.
“If the SEC determined that XRP was a security according to the more traditional Howey Test analysis and existing case law, or if the court ultimately agrees with the SEC’s analysis, then it doesn’t really matter.” Munoz worked out. “And I think the same goes for Coinbase and Binance.”
A ripple in the legal pond
However, if there is significant doubt about how the SEC determined the status of the crypto tokens relevant to these lawsuits, Ripple (and other crypto companies) may be able to legally investigate how the agency arrived at its decision through certain types of evidence to the prosecution related to that trial.
“These documents at least give Ripple, Coinbase and Binance some ammunition to explore in depth why and how the SEC has determined that the tokens in question are securities,” Munoz explains.
Some Web3 commentators are less convinced of the legal utility of the Hinman emails, but Gabriel Shapiro, Delphi Labs’ general counsel, claims the documents are a “nothingburger.”
Hinman emails are a no-brainer, but great for ETH. No idea why Ripple thinks these emails help Ripple’s case….
— _gabrielShapir0 (@lex_node) June 13, 2023
Ripple accessed Hinman’s emails last October, but the documents were not released until recently when United States District Judge Analisa Torres rejected the SEC’s request to seal the emails and keep them for public access.