In December 2020, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the U.S.-based technology company Ripple Labs Inc. for allegedly offering unregistered securities in the form of XRP. The SEC also claimed that Ripple collected more than $1B from the sale of XRP as an unregistered security in 2013. Ripple, on the other hand, denied that XRP is a security, stating that it does not meet the criteria of the Howey Test conducted to evaluate whether an asset is a security or not. In summary, the ongoing lawsuit between the SEC and Ripple is related to whether the company's XRP sale years ago was an unregistered securities offering.
In 2021, Ripple filed a request to access the internal documents related to a speech given by former SEC official William Hinman. In December 2022, the SEC requested that documents containing Hinman's speech be sealed. The SEC cited internal confidentiality, personal privacy, and the “privacy law” that protects government agencies as reasons for its request. However, the SEC’s attempt was denied and the court ruled that the SEC cannot seal the Hinman documents. Ripple CEO Brad Garlinghouse showed his satisfaction with this decision by tweeting, “Another win for transparency”. Garlinghouse also tweeted that they want the Hinman documents to be made public. Also, according to Beincrypto, John E. Deaton, Managing Partner of the Deaton Law Firm, tweeted, “It is clear that things said in the Hinman emails specifically contradict arguments made by the SEC.”
Ripple President Monica Long told CNBC that they are “optimistic” about having a positive resolution “sometime this year”. Long said that it was “very unlikely” that the outcome would be in favor of the SEC and that they think both the facts and the law are on their side. On regulation in the U.S., Long said, “We are seeing action through enforcement versus setting clear rules and regulation, which is what all of us in the industry really desire”. Long also cited MiCA as an example, arguing that Europe is more advanced in terms of cryptocurrency regulation.
What Are the Hinman Documents?
The Hinman documents refer to a speech the former Director of the SEC's Division of Corporation Finance gave at the Yahoo Finance All Markets Summit in June 2018, in which he stated that Ethereum is not a security. Ripple sees this transcript of speech as vital evidence to aid them through their ongoing legal dispute with the SEC. Ripple’s lawyers are trying to uncover more information about Hinman’s conclusion as it could affect the classification of XRP.
What Is the Significance of the Hinman Documents?
William Hinman, whose speech in 2018 was used by Ripple as a compelling argument in the lawsuit, parted ways with the SEC after the SEC had filed a lawsuit against Ripple.
The Hinman documents include a speech by former SEC official William Hinman in 2018 in which he expressed that Ethereum has become “sufficiently decentralized” over time, just like Bitcoin, and therefore is not subject to federal securities regulation. Many experts suggest that these documents provide a legal basis for rejecting the classification of cryptocurrencies as securities.
The Hinman documents are expected to be released on June 13, a date agreed upon by both sides. There are also rumors that Ripple Labs Inc. may soon reach a settlement with the SEC in the case, which is currently underway in the U.S. District Court for the Southern District of New York. However, many analysts think that an agreement between Ripple and the SEC is unlikely.
In a scenario where the court rules in favor of the SEC that XRP is a security, it could lead to heavier regulatory obligations on crypto companies, including crypto asset platforms and market makers. A decision in favor of Ripple may be seen as the approval of the cryptocurrency sector in the public opinion.
