28th November 2022 > > SEC vs XRP.

tl;dr

The SEC vs XRP court case rumbles on.

Market Wrap

Market Wrap

Overnight we saw a test of the big figure handle to the downside. Rumours were circulating on Twitter that wETH (wrapped ETH) is not backed 1:1 by ETH, though the smart contract code is open source and has been endlessly audited. On the back of that, there is a claim that FTX, whilst being run by criminal Sam Bankman-Fried and his cohort of sycophants, created 10,000 wBTC (wrapped BTC) without owning any BTC. Again, this nonsense is easily dismissed, but in the current climate one can understand that investors remain jittery. But as the saying goes, be greedy when others are fearful (NOT investment advice, just an insight into my personal thoughts).

Curious Cryptos’ Commentary – XRP (Ripple) update

In just two days, the next instalment of the SEC (Securities and Exchange Commission) driven persecution of XRP takes place. On Wednesday both sides must file summary judgment reply briefs, whatever they may be.

Throughout this process – in which the SEC accuses Ripple Labs Inc. of selling unregistered securities in the form of XRP – the SEC has fought to keep some specific information out of the public arena, information known as the Hinman documents. These include emails relating to a speech given by the then head of the Division of Corporation Finance, William Hinman. Famously this speech expressed an opinion that neither BTC nor ETH should be classified as securities, and are therefore beyond the remit of the SEC.

The defence lawyers are now in possession of these documents, though they do not (yet) have court permission to make them public. Soon after these documents were disclosed to the XRP legal team, defence lawyer Stuart Alderoty had this to say:

“Over 18 months and 6 court orders later, we finally have the Hinman docs (internal SEC emails and drafts of his famous 2018 speech). Whilst they remain confidential for now (at the SEC’s insistence), I can say that it was well worth the fight to get them. I’ve always felt good about our legal arguments, and I feel even better now. I’ve always felt bad about the SEC’s tactics, and I feel even worse about them now.”

Ouch.

Brad Garlinghouse, CEO of Ripple Labs Inc. was even more scathing in his assessment:

“The SEC wants you to think that it cares about disclosure, transparency, and clarity. Don’t believe them. When the truth eventually comes out, the shamefulness of their behaviour here will shock you.”

Ouch again.

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Neither of these individuals could be remotely described as impartial, but I would be mightily surprised if there is literally no basis or justification for their comments.

Regular readers understand that the outcome of this court case is of great import to the crypto revolution taking place right here, right now. A win by the SEC, following their recent success against LBRY Inc. (see CCC 15th November 2022 for more details) would embolden Gary Gensler, Chair of the SEC, in his seemingly personal crusade to become known as the crypto killer. It is a shame that a man of his towering intellect wishes to die upon a battlefield of his own making, with a low prospect of success.

A win by Ripple Labs Inc. would cement the role of the CFTC (Commodities and Futures Trading Commission) as the lead regulator for most cryptos, an outcome that is undoubtedly best for all.

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I remain mystified by one aspect of this case.

XRP proponents, whose enthusiasm on social media knows no bounds, keep banging the drum that William Hinman is corrupt. They point to his $10mm or so annual salary as a partner in a law firm during his tenure at the SEC.

$10mm a year is at the low end of the scale for partners at large law firms, so I don’t buy this line of argument.

They state that his law firm was retained by the Ethereum Foundation during his secondment to the SEC, claiming that this demonstrates a conflict of interest. I can only assume appropriate measures were in place to mitigate this very real risk, but I admit I have as little evidence of that claim as others do of his purported corruption.

But putting all that to one side, if William Hinman did make his speech declaring that ETH is not a security simply because he was being (indirectly) paid by the Ethereum Foundation to make such a claim, that only adds to the probability of the SEC’s success in this case.

However many times I ask this question, no answer has yet been forthcoming – what exactly am I missing here?