U.S organization sues SEC for Ripple case, claims top officials had conflict of interest

  • EMPOWR has sued the SEC for its handling of the Ripple lawsuit, alleging that Jay Clayton, Marc Berger and Bill Hinman had a massive conflict of interest.
  • The three officials left the SEC to join companies allied to or dealing in Bitcoin and/or Ethereum, with Hinman being on the payroll even while he was at the SEC.

For a long time, the XRP community has accused the Securities and Exchange Commission of playing favorites and being biased against the project. Now, there is a lawsuit to back it up. A U.S government oversight organization has sued the SEC for its handling of the Ripple lawsuit and accused former chair Jay Clayton and director Bill Hinman of having a conflict of interest that biased them for Ethereum and Bitcoin, but against XRP.

The lawsuit was filed at the Eastern District of Virginia by Empower Oversight Whistleblowers & Research (EMPOWR), a nonprofit, nonpartisan educational organization focused on independent oversight of government and corporate wrongdoing.

EMPOWR wants the SEC to comply with a Freedom of Information Act request in which the organization wants access to records maintained by the watchdog. These records concern potential conflict of interest by some of the top SEC officials relating to cryptocurrencies.

It noted:

In particular, the circumstances of certain former SEC officials’ declarations of whether particular cryptocurrencies constitute securities—and thus are subject to SEC regulation—raise significant questions regarding potential conflicts of interest.

The first target is Hinman, the former director of the division of corporate finance at the SEC. Before joining the regulator, he was a partner at law firm Simpson Thatcher. EMPOWR claims that Hinman continued to receive millions of dollars from the law firm while at the SEC, with one outlet reporting that the money he received from the law firm was seven times his government salary.

Receiving the funds isn’t a crime by itself. However, Simpson Thatcher is a member of the Enterprise Ethereum Alliance which aims to drive the adoption of Ethereum. Of note is that Hinman did declare that Ethereum isn’t a security back in 2018.

Curiously, Hinman left the SEC in December 2020, and in that same month, the watchdog launched a lawsuit against Ripple for allegedly violating securities laws.

Immediately the SEC announced its charges against Ripple, the value of XRP dropped by 25 percent.

Further tying up to the suspicious dealings at the SEC is Marc Berger. Berger was the former leader of the SEC’s Enforcement Division and was personally leading the efforts to file a lawsuit against Ripple. Shortly after filing the lawsuit, he left the SEC and curiously, he also joined Simpson Thatcher, the Ethereum-allied company that Hinman works at.

Former SEC chair acted in self-interest – EMPOWR

Then there is Jay Clayton, the former SEC chair under whose leadership the regulator charged Ripple. In fact, Clayton left the SEC almost immediately after charging Ripple and left his successor Gary Gensler (another whose anti-Ripple agenda has come under scrutiny) to drive it on.

Clayton has been on record saying that Bitcoin is not a security, and immediately he said this, the BTC price shot up. Just like his two peers, once he left the regulator, he joined a private firm with cryptocurrency interests. He now acts as an advisor to One River Asset Management, a company that focuses exclusively on Ethereum and Bitcoin.

The lawsuit concluded:

It is in the public’s interest that the government’s regulation of the emerging cryptocurrency market is based on objective legal principles. As a result, potential conflicts of interest in this space are of significant public importance.

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Steve has been a blockchain writer for four years, and a crypto enthusiast for even longer. He is most excited by the application of blockchain to solve the challenges facing developing nations.

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