Newly discovered documents could pose a major stumbling block in the Securities and Exchange Commission's (SEC) case against Ripple if they prove that an official at the agency had a conflict of interest.
Since 2020, the SEC has been waging a lawsuit against the XRP company and its executives Brad Garlinghouse and Christian Larsen alleging the sale of unregistered securities.
Is there a conflict of interest?
Empower Oversight, a corruption watchdog, said in a May 10 statement that documents suggest former SEC director of corporate finance William Hinman had a conflict of interest. Therefore, he should not have delivered the 2018 speech in which he explained that Ethereum and its transactions are not securities.
Empower Oversight Requests SEC-OIG Conduct Investigation into the Failure of the SEC’s Ethics Office to Prevent Cryptocurrency Conflicts of Interest by Senior Staffhttps://t.co/fMRPTUN0ov#cryptotrading #crypto #Bitcoin $BTC $ETH $XRP— Empower Oversight (@EMPOWR_us) May 10, 2022
According to the nonprofit monitoring organization, Hinman should not have spoken about Ethereum due to his undisclosed direct financial interest in the Simpson Thacher & Bartlett law firm, which is a member of the Enterprise Ethereum Alliance (EEA). The EEA promotes the use of blockchain technology on the Ethereum blockchain.
Read also: Ripple CEO: SEC Helped Ethereum to Overtake XRP
Hinman's activities in recent years
John Deaton, founder of a legal news outlet, said that the SEC's case against Ripple could not have succeeded in the first place. The conflict of interest issue within the SEC is what has jeopardized the entire case.
@EMPOWR_us and @JsnFostr retrieved the emails below. If Hinman didn’t submit the speech to conflicts screening it is game set & match. The Ethics Office is going to be pissed and want to throw him under the bus if we force this investigation through letters from Congress. pic.twitter.com/8j9Nwb0OZn— John E Deaton (@JohnEDeaton1) May 11, 2022
Hinman was an attorney at Simpson Thacher & Bartlett before joining the SEC in 2011 and returned to the firm after retiring from the commission in 2021.
The complaint alleged that Hinman received $1.5 million annually in pension benefits from the law firm while he was with the SEC, and implied that he had repeated contact with law firm employees despite direction from the Ethics Office.
What's next for Ripple?
The SEC's Inspector General considered whether the SEC's ethics officers had a conflict of interest in this case. The statement makes three different points. These are as follows:
(1) Understand how the run-in with this former official has heightened the perception that SEC enforcement actions are selectively targeting some cryptocurrencies while giving others carte blanche; (2) Explain to the public how the SEC's Ethics Office has failed to effectively ensure compliance with its clear policies; and (3) evaluate the SEC's policies and procedures to identify ways to more effectively monitor compliance with ethics guidelines.
The SEC's decision against XRP could have a significant impact on how regulators view digital assets. At the same time, it could open the door to new types of litigation based on their implications.
At the time of writing, the price of XRP is down 19.2% over the past 24 hours and is trading at $0.41.
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