In December 2020, the SEC filed a lawsuit against Ripple, claiming that the sale of XRP constituted an unregistered securities offering. Additionally, the SEC named Chris Larsen, Ripple’s executive chairman, and Brad Garlinghouse, the chief executive officer, as co-defendants, accusing them of aiding and abetting Ripple’s violations.
As part of the ongoing lawsuit, a significant number of documents related to a speech delivered by William Hinman, a former director at the SEC, regarding the classification of cryptocurrencies as securities, were released on Tuesday. Although the SEC attempted to keep these documents sealed, Judge Analisa Torres of the U.S. District Court for the Southern District of New York ruled in May that they should be made public, which was seen as a favorable ruling for Ripple.
In a speech given in June 2018, Hinman stated that sales of the Ether cryptocurrency should not be considered securities transactions, stating that applying the federal securities laws’ disclosure requirements to current Ether transactions would provide limited value, similar to Bitcoin. Ripple has been using this speech as a key argument in its fair notice defense.
Among the released documents are email exchanges between Hinman and several SEC staff members, which were part of the preparations for his 2018 speech. In one email, an SEC employee commented on the draft of the speech, stating that taking an excessively strong stance on the lack of benefits from the disclosure provisions of federal securities laws regarding Bitcoin could undermine the SEC’s efforts concerning other crypto-assets that are classified as securities.
Stuart Alderoty, Ripple’s chief legal officer, has called for investigations into Hinman’s actions. Alderoty expressed his concerns on Twitter, stating that an investigation is necessary to understand what or who influenced Hinman. According to Alderoty, the released documents indicate that Hinman disregarded multiple warnings and presented unsubstantiated analysis, which goes against the law. Alderoty also accused the SEC of flip-flopping and overstepping its jurisdictional boundaries.
Brad Garlinghouse, the CEO of Ripple Labs, also took to Twitter to express his dissatisfaction, calling it “absolutely unconscionable” that the regulator proceeded with the speech despite internal opposition. Garlinghouse added that the lack of regulatory clarity has been exploited by the SEC through enforcement actions since the speech was delivered, effectively weaponizing the situation.
It remains to be seen how these developments will impact the ongoing legal proceedings and the overall market sentiment towards XRP and Ripple.