Ripple v. SEC and the Hinman Speech: What Happened Behind the Scenes

The U.S. Securities and Exchange Commission (SEC) has released its long-awaited internal documents related to former commissioner William Hinman’s speech on digital assets in 2018. 

The reveal incited fury from Ripple CEO Brad Garlinghouse, who has now accused the SEC of willingly throwing “an entire industry into chaos” by releasing the speech. 

Hinman Ignored All Warnings

According to now publicly available emails from the SEC, the agency warned Hinman multiple times that the wording of his speech could create confusion in the market about why he or the SEC might believe Ether (ETH) is not a security.

“As written, it may not be apparent to the reader which characteristic or factor weigh against it being a security or not,” wrote one of the agency members about the speech. 

Released in June 2018, Hinman’s speech provided an “illustrative list” of which factors the SEC might consider when determining whether a digital asset is a security. 

Certain agency members criticized the chairman for not tying his criteria “more closely and explicitly to the Howey analysis” – a standard for classifying investment contracts often cited by SEC Chairman Gary Gensler today. 

Others noted that the speech was “ambiguously worded,” and seemed to include factors that weren’t clearly relevant to securities laws at all – such as whether an asset can be “hoarded.”

Hinman’s speech is central to the SEC’s ongoing lawsuit against Ripple, alleging that the sale of XRP beginning in 2013 constituted an unregistered securities offering. Ripple asserts that Hinman’s speech describing Ether as a commodity would also rule out XRP from being a security since it was sold in a similar fashion. 

Ripple’s Response

After the reveal, Ripple’s Chief Legal Officer Stuart Alderoty called for Hinman’s speech to be removed from the SEC’s website, and never again be invoked in discussions about whether an asset is a security.

2/ We now can all see Hinman ignored multiple warnings that his speech contained made-up analysis with no basis in law, was divorced from the Howey factors, exposed regulatory gaps, and would create not just confusion, but “greater confusion” in the market.

— Stuart Alderoty (@s_alderoty) June 13, 2023

Meanwhile, Ripple CEO Brad Garlinghouse called it “absolutely unconscionable” that Hinman would release his speech despite receiving tremendous internal pushback. 

“Seeing the depth to which the SEC has essentially weaponized the lack of regulatory clarity through enforcement actions since this speech was given – it’s no surprise that we can call bluff on their claims to “just come in and register” as nothing but in bad faith,” he said. 

Ripple had private access to the documents months ago, but they weren’t unveiled to the public until today under a court order from New York judge Analisa Torres. Garlinhouse had previously told followers that the documents would be “well worth the wait.”

Last week, the SEC deleted almost all details within Hinman’s biography from its website.