It should be noted that Grundfest was retained by Ripple. The SEC has also admitted in court that no investigation was ever opened against ether. Why did Ethereum get a free pass and Ripple get sued? Despite the SEC fighting tooth-and-nail to stop it, Ripple was granted the right to depose Hinman and now they are battling to get SEC documents showing who drafted, edited and saw the Hinman speech in advance.
Those discovery documents revealed the speech was attached to 63 emails in the drafting phase, but the SEC refuses to disclose who was on them. Discovery also revealed that Hinman only provided a draft to Clayton and no other commissioner. This means Commissioner Hester Peirce, a. And thanks to the investigative work of the XRP Army on social media, I have obtained a copy of the March Andreessen Horowitz investor group memo to Hinman, advocating for a specific free pass for ether.
And it has brought a lot of scrutiny to the web of personal financial interests tied up between Clayton, Hinman, Lubin and the Hinman speech. What a coincidence. The truth is that all of these cryptos start out as a security in the first few years.
Arguably, bitcoin is the only crypto asset not to originate a security. But even bitcoin was sometimes considered a security by the SEC in and I got involved in this from the very beginning. The SEC filed the case on December 22, I acted immediately.
Specifically, I wanted the SEC to exclude characterizing as unregistered securities the XRP held by my clients that were purchased in the secondary market from Coinbase and other exchanges and not from Ripple. Many of my clients had never heard of Ripple until the lawsuit. I immediately withdrew my Writ and filed a motion to intervene as a defendant in the SEC case against Ripple.
The motion has been fully briefed and we are waiting for a decision. As far as my role or potential bias in this case, I am not being paid for my efforts and I have used my own money to fund the intervention. I have no connection to Ripple or its attorneys. Stuart Alderoty, Ripple general counsel, broke the news on Twitter on Thursday, declaring victory in an month battle within the larger war over the collection of discovery materials dubbed "the Hinman documents. Hinman's remarks that day represent the thickest cloud currently looming over ongoing debates over crypto regulations, and play a key role in the SEC's December lawsuit against Ripple , asserting that Ripple sold XRP as an unregistered security.
Story continues Ripple initially won the right to request the documents in January. Some industry watchers felt that the documents wouldn't substantially strengthen Ripple's case , but according to Alderoty, those assumptions are wrong. Even as his company celebrated its 10th anniversary hours before the documents were released, he was fuming on Twitter. We all should be outraged. The SEC has clearly forgotten that the government works for the people.
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Ethereum is a security (SEC v. W. J. Howey Co.)FOREXTICKET REVIEW ONLINE
And a failure by the SEC to provide fair notice otherwise sustained this belief. Ripple contends similarities between all three led them to believe XRP is also not a security. Which they have so far failed to produce. But in a further twist, last month, Judge Netburn approved the deposition of Hinman. Meaning he must testify in court on the matter. In response, Hinman filed an affidavit saying his speech was not the position held by the SEC, only an expression of his personal opinion.
In effect, this means Ethereum and Bitcoin are not necessarily securities compliant. He added that the sector was only catching on as a way to skirt the law. Sign Up for Our Newsletter! For updates and exclusive offers enter your email. I believe he is wrong. They give guidance and enforce the law. Hinman did not say that Ethereum never was a security.
The Howey Test — a really short intro to securities. To answer this question, we have to put our lawyer hats on. We have to examine quite some case law on investment contracts, starting with Howey vs SEC. The groves were then leased back to Howey under a service contract which stated that Howey would tend to the land, harvest it and sell the produce.
Although this was not technically an investment contract, it was held by the Supreme Court that the form of the relation between the parties should be disregarded in light of the economic reality. At the end of the day, investors were investing in Howey with an expectation of profits.
As such, the Howey-test was developed. According to this test, any situation that meets the following 4 criteria is considered to be an investment contract — and therefore a security: There is an investment of money In a common enterprise With an expectation of profits Resulting from the sole efforts of a third party You might be thinking: Why does this matter? Well, investors want to profit from their investments. As an investor, the success of your investment is dependant on the efforts of the issuer.
To make an informed investment decision, you therefore want to have access to any important information about whatever it is you invest in. The law recognizes this. Hence, securities laws make sure that if a contract meets the four criteria of the Howey-test, the issuer has to file a so-called prospectus. Simply said, in the prospectus, the issuer has to provide information about, for example, its background, financing, plans, financial stakes and risks. Everyone who participated in the ICO invested their Bitcoin, hoping for profits which would arise from the development of Ethereum, or in other words, from the efforts by the issuer of the tokens.
So why would the SEC now say that Ethereum is no longer a security? Hinman elaborated. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful. Why would an investor need information disclosure about a party that no longer has any influence on the invesmtent which is acquired?
Someone who buys a citrus instead of the groves from Howey has no use of information about the operational, financial and management risks of Howey-in-the-hills itself. The fourth criterium of the Howey-Test profits resulting from the sole efforts of a third party would not be met, and, as such, Ethereum would not be a security. In practice however, this is very difficult.
At the same time however, the Ethereum Foundation still plays a large role. Where is the line between a centralized token and a decentralized one? How do we even measure decentralization? And is Ethereum decentralized enough to cross it? Therefore, if significant or essential efforts from the Ethereum Foundation are required for the success of Ethereum, it is still a security.
In theory, there is a substantial degree of decentralization here. Literally anyone can propose and contribute to code and any such new code will be voted on by a decentralized set of miners. In practice however, I believe that a closer examination would show that a significant influence still resides with its issuers. All these changes have had a direct, measurable effect on the value of Ethereum.
In fact, the DAO hard fork decision, which only came to be due to the efforts of Vitalik Buterin, has even led to Ethereum splitting up in two different assets: Ethereum and Ethereum Classic. To this day, his efforts to market, develop and form the Ethereum ecosystem are what makes Ethereum unique as compared to similar projects.
It is these efforts that have given, and continue to give, Ethereum its competitive edge over other smart contracting platforms. To do so, we have to know what gives Ethereum its value.
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