SEC comments on Hinman speech released in Ripple Labs filing

Documents have been released related to William Hinman, the former director of the U.S. Securities and Exchange Commission (SEC)’s Division of Corporation Finance from 2017 to 2020, in connection with the SEC's lawsuit against Ripple Labs.

The documents show the Trading and Markets Department's comments on the draft version of Hinman's 2018 speech, which suggested that bitcoin (BTC) and ether (ETH) were not securities, in his view.

Prior to making the speech, Hinman said in an email to multiple SEC employees that the speech suggests "we do not need to see a need to regulate Ether, as it is currently offered, as a security."

In the comments, the Trading and Markets Department said that the speech delivered on what the general public have been asking from the SEC and that it was very supportive of the speech and what it was communicating.

The department also noted that taking too strong of a view on bitcoin — in relation to a lack of disclosures — could undermine the SEC's efforts toward other cryptocurrencies that are securities. It also expressed concerns about the sentiment in the section saying that ether was not a security. It said that if Hinman wanted to make a blanket statement that ether is not a security, this would need further internal discussion.

SEC took on Ripple Labs

In December 2020, the SEC initiated a high-profile lawsuit against Ripple Labs, alleging that the company raised over $1.3 billion through an unregistered digital asset securities offering with its cryptocurrency, XRP. William Hinman later emerged as a key figure in this lawsuit. The documents were released per the order of the U.S. District Court for the Southern District of New York.

This statement had been frequently cited by Ripple Labs throughout the ongoing legal proceedings. Ripple argued that Hinman’s remarks, particularly regarding the status of ETH, contradict the SEC’s claim that XRP is a security.

Ripple has been seeking these documents since late 2021. Brad Garlinghouse, Ripple’s CEO and a key defendant in the case, said — ahead of the release of the documents — that the wait would be worth it.

"Wish I could go in depth now, but we’ve waited this long (18+ months), I don’t want to overstep… suffice it to say,’ Brad Garlinghouse tweeted in response to a post by crypto YouTuber Jungle Inc. "Stuart Alderoty [chief legal officer at Ripple] and I believe the documents were well worth the wait," he added.

Potential impact on crypto classification

The public release of the Hinman documents may ignite a significant debate about the classification of cryptocurrencies as securities, especially during these challenging times for the industry. Recently, the SEC filed lawsuits against crypto exchanges Coinbase and Binance, accusing them of selling unregistered securities. In the legal complaint against Coinbase, the SEC listed at least 13 crypto assets that the agency claimed Coinbase made available to customers, including solana (SOL) and cardano (ADA).

Today will be a momentous day for legal issues in the crypto space, according to Paul Grewal, Coinbase’s chief legal officer. Besides the release of the Hinman documents, there are two other significant developments: a federal court hearing on the SEC’s motion to seize Binance’s assets in the U.S. District Court for the District of Columbia, and the SEC’s expected response to a rulemaking petition from Coinbase. Submitted in April, the petition argues that the current regulations are ill-suited for the crypto sector. The response is anticipated in the U.S. Court of Appeals for the Third Circuit.