Former SEC officials under investigation for corruption in Ripple lawsuit

YEREVAN (CoinChapter.com) — Two former United States Securities Exchange Commission (SEC) officials are under investigation. The officials are accused of corruption and misuse of power regarding their handling of the lawsuit against Ripple.

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The SEC vs Ripple saga

Last December, the US Securities Exchange Commission sued Ripple and its founder and executive chairman Chris Larsen and CEO Brad Garlinghouse for openly distributing XRP, the platform’s token, for seven years. 

According to the SEC, the distribution of XRP was illegal. By trading in the cryptocurrency, the officials had traded what the SEC regarded as unregistered securities trades. The SEC considers XRP not as a currency but as security.

Ripple, however, disputes the allegations made by SEC. According to the company, they had repeatedly asked the SEC to clarify what, according to them, amounted to security. Instead, the SEC had watched without objections billions of XRP tokens traded on global cryptocurrency exchanges for seven years before deciding to file a suit. 

One of our defences in the case is that the SEC failed to give fair notice to market participants about which digital assets they would consider to be what’s called investment contracts under the law or, stated even more precisely, how they would go about determining which digital assets would be investment contracts under the law.

Ripple General Counsel Stuart Alderoty said in an interview to Protocol.

The SEC seeks to ensure that the XRP gets sold as securities, not currency, in the crypto market through the suit.

According to Stephanie Avakian, the then deputy director of the commission’s Enforcement Division, the failure to register XRP as security had “deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections; that is fundamental to our robust public market system.”

Recommended: XRP explodes 9% as Ripple vs. SEC battle continues

Empower Oversight alleges conflicts of interest in Ripple case

Empower Oversight, a newly-formed whistleblower organization, announced on Wednesday that it had submitted a request under the Freedom of Information Act (FOIA) to the U.S. Securities and Exchange Commission (SEC). In the application, the organization asked for details from “communications between SEC officials and their current and former employers.”

In the letter  submitted to the acting chief of the Freedom of Information Act (FOIA), Empower Oversight founder Jason Foster stated, 

We write today seeking information regarding the appearance of conflicts of interest by former high-level officials at the SEC relating to cryptocurrencies.”

 Their website says Empower Oversight is “a nonprofit, nonpartisan educational organization dedicated to enhancing independent oversight of government and corporate wrongdoing.”

Recommended: Ripple files Motion to Seal Slack communication exhibits.

Two SEC officers suspected of bias

Two former officials of the US SEC, Willam Hinman and Jay Clayton are under investigation of corruption in the case against Ripple.
William Hinman and Jay Clayton. Credit: U.S. Securities and Exchange Commission

According to Empower oversight, two high-ranking officers worked against Ripple in what seems to be a case of corruption. 

William Hinman, the former SEC Director, Division of Corporation Finance, is one of the accused. Hinman allegedly took money from Simpson Thacher law firm, his former employer, to act against Ripple.

Hinman’s former employer Simpson Thacher is part of the Enterprise Ethereum Alliance. As a member of the EEA, the law firm works to popularise the enterprise use of Ethereum.

As an SEC official, Henman was instrumental in declaring that ETH was not a security, spiking Ethereum’s market value. 

Meanwhile, o further help Ethereum, Hinman made sure that the SEC went after Ethereum’s competition Ripple. In a dramatic lawsuit against the company, the SEC sued to prove that the XRP token was a security. 

According to Empower Oversight:

“Later, the SEC sued one of Ethereum’s competitors, Ripple, declaring its cryptocurrency, XRP, was security. Shortly thereafter, XRP’s value plummeted 25%. After Hinman left the SEC in December of 2020, he returned to Simpson Thacher as a partner. The leader of the SEC division that brought the XRP lawsuit, Marc Berger, similarly left the SEC for Simpson Thacher.”

Another high-ranking SEC officer, the former Chairman Jay Clayton, faces similar allegations. 

According to Empowerment oversight, Clayton had used his powers to declare that Bitcoin wasn’t a security.

His honesty was also suspected when he joined One River Asset Management after his tenure. The organization is a cryptocurrency hedge fund focusing on Bitcoin and Etherum.

Recommended: Expect no settlement in the Ripple vs. SEC case, legal analyst says

The investigation will impact Ripple lawsuit

Since the allegation, John Deaton, the lawyer for the XRP Holders, has pointed at a conflict of interest from the two SEC officials. 

In the meantime, the Empower Oversight investigations will certainly impact the ongoing Ripple lawsuit.

The crypto community has been impatiently waiting for the outcome. However, the SEC has said that the case could take “several months, if not longer,” before resolution.

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