A federal judge in Manhattan has criticized Wall Street’s top law enforcement official for using “hypocritical” litigation strategies in what is being dubbed the century’s biggest Bitcoin trial.
As U.S. Magistrate Judge Sarah Netburn rejected a motion by the Securities & Exchange Board in its legal action against cross-border payments startup Ripple Labs, the characterization was made.
The SEC has charged the cryptocurrency platform with creating XRP, unregistered securities, illegally in order to expand its business and enrich company executives.
In order to clarify the then-developing cryptocurrency market, a former SEC employee gave a speech in 2018. The SEC is attempting to retain private records related to that speech.
William Hinman, the company finance head, argued in the speech that all digital currency other than bitcoin and ether could be unregistered securities and are vulnerable to SEC prosecution. Shortly after, Ripple was accused by the SEC of selling unregistered XRP coins.
The SEC first argued that Hinman’s statement was not intended to provide market direction by the agency, but rather represented the view of one person. Since Judge Netburn ordered that all papers pertaining to the composition of Hinman’s speech be turned over to the court, the agency has revised its position on the nature of Hinman’s speech.
The speech and the related draughts, according to the SEC, contained not just Hinman’s view but also that of the Division of Corporation Finance, making them subject to attorney-client privilege and deserving of confidentiality. Infuriated by the SEC’s shifting interpretation of Hinman’s statement, Netburn issued a ruling on Tuesday requiring the agency to give up the documents to the court, dismissing its request to attorney-client privilege, and passing an exceptionally critical judgement on the agency’s motivations.
“The SEC is adopting it’s own litigation positions to further its desired goal and not out of a faithful allegiance to the law,” said Netburn. “The hypocrisy in arguing to a 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 either hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his speech.”
An SEC spokesperson was silent. Ripple was silent. No one could get in touch with Bill Hinman for comment.
As the last official move of Trump SEC chief Jay Clayton, Ripple has contended that versions of Hinman’s speech were forwarded to several SEC members for their approval and will demonstrate the commission’s hazy thinking in launching the case two years later.
The lawsuit is still being litigated by Gary Gensler, a Biden appointment who replaced Clayton, and if it is won, it may have significant regulatory repercussions for the $1 trillion crypto market.
The SEC’s legislative power in the cryptocurrency space has been hazy; a resounding victory in the Ripple case might pave the way for more SEC action. In contrast, a victory for Ripple would represent a significant defeat in Gensler’s efforts to control the “wild west” of investment.
The draughts of Hinman’s speech and other pertinent documents are important pieces of evidence, according to the ripple attorneys, and they may also show that the SEC improperly singled out the company for regulatory action.