What's in the SEC's Hinman Emails and Do They Really Help Ripple?

By Nicholas Morgan

After much legal wrangling, Ripple shared the highly anticipated contents of former Securities and Exchange Commission director William Hinman’s speech. Rather than a smoking gun, observers suggest that the emails reveal little in the way of new information that can help Ripple in its lawsuit against the SEC.

The Hinman emails include exchanges between Hinman and members of the SEC staff in preparation for a June 14, 2018 speech where he talked about how different digital assets might be regulated. Much of the attention in advance of the emails’ release was focused on Hinman’s statement that Bitcoin and Ethereum were not assets he considered securities.

Sentiment ahead of the release, at least among Crypto Twitter, was that the emails would show the SEC picking two winners: Bitcoin and Ethereum. But legal experts interviewed by Decrypt at the time were skeptical of how much it would help Ripple. Observers on Twitter today noted that the emails are less valuable from a legal standpoint than they are as a way to build public support for changes to how crypto is regulated.

"I think they are more helpful in showing the SEC doesn’t deserve the benefit of the doubt for their current actions against crypto. It’s only a potential win in the court of public opinion," Austin Campbell, a managing partner at Zero Knowledge Consulting, said on Twitter.

Gabriel Shapiro, general counsel for Delphi Labs, called the emails a "nothingburger" that revealed nothing new that would help Ripple's case.

"I'd love it if this helped Ripple's case but it just doesn't," tweeted Shapiro.

In his own thread on Twitter, Ripple Labs CEO Brad Garlinghouse said it's "absolutely unconscionable" that Hinman forged ahead with his speech while staffers at the Commission pushed back on it. He said it's even more troubling that the SEC sued Ripple Labs and its founders, "when their own Division Head deliberately created confusion about this."

In dozens of emails in the week leading up to Hinman's Yahoo Finance All Markets Summit appearance, staffers went back and forth with the then-director in multiple drafts to characterize the SEC's stance on crypto regulation. Most were exchanges about suggestions by staffers for the speech, such as how to clarify the SEC’s views on application of the Howey Test, to ideas to add “something witty and snappy" to the speech title. The SEC settled on: When Howey Met Gary.

In an early version of the draft from May 24, Hinman wrote that it was his view that the disclosure requirements under federal securities laws did not apply to Bitcoin or Ether compared to other tokens. In one comment from June 13, the day before the speech,  a staffer cautioned against suggesting Bitcoin was not a security out of concern for how it could affect future SEC actions.

"Although we do not want to suggest that BTC is a security, taking too strong a position on the lack of any benefits from the disclosure provisions of the federal securities laws...might be a wedge that could undermine SEC efforts towards other crypto-assets where the asset is a security," SEC staff wrote in a comment on the draft speech.

Staffers went back and forth on how to qualify their views on it. In one draft of the speech from June 4, a commentator cautioned that phrasing around Ether would be decided on after meetings with Ethereum co-founder Vitalik Buterin and the Ethereum Foundation. A week later, Hinman wrote that Ether did not count as a security after "putting aside the fundraising" that accompanied it.

When he delivered his speech at the summit, Hinman used a slightly modified version of this section with an added part on disclosure requirements.

"As with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value," said Hinman on June 14.

Ripple’s lawyers have fought for months to get the SEC to furnish Hinman’s emails as part of their defense against a December 2020 lawsuit that accused them of selling unregistered securities. They had access to the emails since last October, but are now being released to the public after a federal judge denied an SEC motion to keep them under seal.

After the Hinman emails were released, the price of XRP jumped to $0.56 from $0.53 before sinking to about $0.51 at the time of writing, according to data from Coingecko.

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