- Ripple has been placing a lot of hope on William Hinman, a former SEC director who declared Ether isn’t a security, but even he has turned on them.
- In his deposition, parts of which have now become publicly available, the former regulator claimed to have told Ripple that XRP was a security and in violation of SEC guidelines.
In 2018, William Hinman declared Ether and Bitcoin were not securities. This has come to play a major part in the Ripple vs. the U.S Securities and Exchange Commission’s legal battle, but in the latest twist, Ripple has been dealt a major blow. Hinman has claimed he told the blockchain payments company that XRP was a security and urged the firm to stop selling them.
Ripple made every possible effort to depose Hinman, who is the former SEC director of corporate finance. The SEC, on its part, fought even harder to quash the deposition. It went as far as claiming that Hinman was speaking in a personal capacity when he exempted Ether and BTC from being labeled as securities. However, despite the SEC’s effort, the deposition took place last month, and now for the first time, parts of it have become available to the public.
I told you XRP was a security
The most striking discovery from the deposition is that Hinman claims to have made it clear to Ripple that it was engaging in securities violation by selling XRP. Hinman was replying to an inquiry on whether during his tenure, there were instances when his guidance was sought as to the application of federal securities laws to digital assets.
Frankly, the one I recall the most clearly is probably the one when XRP came in with a person who had my position before me, as well as enforcement counsel. They were interested in is there a way to restructure what we’re doing to bring it within compliance of the securities laws, and the first thing I said to them was you’re continuing to offer XRP without any kind of restrictions that would apply as a securities offering.
If you want to come into compliance you have to stop doing that, and they understood that.
Hinman’s response could be a big blow to Ripple. The San Francisco company has been pleading ‘lack of fair notice’ as its main defense in the lawsuit by the SEC. Hinman has been a key part of this defense, but now, with him claiming that he informed them years ago that XRP could be a security and they should stop selling it, this defense could lose its appeal.
Ripple: If we're doing something wrong, how can we fix it?
Hinman: You can't. Just stop selling XRP until we get our lawsuit finished.
Ripple: That's extremely unhelpful.
Hinman: I'll be more helpful when I get back into private practice. Call me then.
-Hinman depo pg.96
— Jeremy Hogan (@attorneyjeremy1) August 17, 2021
SEC wants Hinman deposition redacted and sealed
In a motion filed on Tuesday, August 17, the regulator called on New York Judge Sarah Netburn to approve its motion to seal its privilege logs. According to the watchdog, the privilege logs “provide significant detail regarding which SEC employees communicated with other SEC employees, on which specific topics, and at which specific times. This information about particular government employees and their communications is sensitive and could potentially be exploited for improper purposes.”
Of particular concern to the regulator is the deposition of Hinman. The SEC has called for redactions to the deposition as it concerns “the identities of and information about third parties-Director Hinman’s current or former clients and third parties that discussed their business plans with the SEC as they related to the federal securities laws.”
Not everyone was pleased with this, with Attorney John Deaton summing it up as the SEC “literally arguing that transparency will be a deterrent to public service.”
They are literally arguing that transparency will be a deterrent to public service.
Unbelievable! 🤦♂️ https://t.co/EOFnFiPFEc
— John E Deaton (@JohnEDeaton1) August 17, 2021