Hinman docs’ impact on XRP and SEC’s credibility.

The Hinman documents were unsealed and made public on June 12, after a long legal battle between Ripple and the United States Securities and Exchange Commission (SEC). But what do these documents actually reveal? The documents are extensive and can be found in public resources like the Public Access to Court Electronic Records (PACER) or CourtListener. Lawyer James Filan compiled the documents into two URLs and tweeted them on June 13.

#XRPCommunity #SECGov v. #Ripple #XRP Here are the Hinman documents, by Exhibit number, in one place. https://t.co/6kUYZ1X2WK https://t.co/wZQmalfFkS

β€” James K. Filan (@FilanLaw) June 13, 2023

According to pro-XRP lawyer and founder of CryptoLaw John Deaton, “the documents themselves don’t impact the judge’s underlying analysis of whether XRP was offered/sold by Ripple as an investment contract, or XRP’s status in the secondary markets in the United States.” This is considered a key defense of Ripple during its legal battle with the SEC.

After the documents were unsealed, many people, such as Gabriel Shapiro, general counsel for crypto firm Delphi Labs, called them a “nothingburger,” which had no impact on the case between Ripple and the SEC. However, pro-XRP lawyer and Hodl Law founder Fred Rispoli had a different take. He suggests they are “explosive” because they shed further light on why Hinman gave the speech despite protests from other SEC divisions.

The documents also highlight what appears to be an acknowledgment from Laura Jarsulic, an attorney with the SEC’s Office of General Counsel, that tokens on a sufficiently decentralized network might exist in a “regulatory gap” where the tokens are “not a security because there’s no ‘controlling’ group,” but “there may be a need for regulation to protect purchasers” as occurs with credit cards and medication. This might be significant, as current SEC chair Gary Gensler has repeatedly said that he believes all cryptocurrencies except for Bitcoin are securities and that rules for crypto already exist.

Ripple’s fair notice defense refers to the argument that the SEC had not provided it with sufficient notice before suing it for committing securities fraud in December 2020. However, the defense is generally not perceived to be strong, as longstanding court precedent β€” i.e., the Howey test that determines whether a transaction qualifies as an investment contract or security β€” is regarded as fair notice.

The FAIR NOTICE DEFENSE is not what a lot of people think it is. I see a lot of comments about how @Ripple ‘s FND is a slam dunk and Ripple and #XRP will win. Make no mistake about it, Ripple hopes the judge never decides the FND. #XRPHolders would prefer no decision on the FND.

β€” John E Deaton (@JohnEDeaton1) July 2, 2022

The Hinman documents have provided support for Ripple’s argument that the speech given by former SEC Director William Hinman caused market confusion and hindered market participants’ ability to determine what constitutes a security under the Howey test. Ripple’s Chief Legal Officer Stuart Alderoty pointed out that the emails exchanged between various SEC members highlighted that some of the factors Hinman used in determining that Ether was not a security had no legal basis. However, former SEC securities lawyer Marc Fagel, who worked at the agency for 16 years, stated that the emails contained no real bombshells relevant to the case, but highlighted potential conflicts of interest. Hinman was previously employed by Simpson Thacher & Bartlett, a law firm and member of the Enterprise Ethereum Alliance, which advocates for the use of Ethereum blockchain technology. Hinman continued to receive millions of dollars from the firm while working at the SEC, which has led to allegations that he was paid off to give Ether a free pass. Despite this, Ripple cannot actively use the emails in their case. It is believed that the documents are good for Ethereum and could also help ERC-20 tokens like Dragonchain, which are governed by the Ethereum blockchain.