The US Security and Exchange Commission’s (SEC) Office of Inspector General (OIG) is currently conducting an investigation into cryptocurrency-related financial conflicts of interest. This investigation was prompted by Empower Oversight, an accountability group that recently revealed concerns regarding the SEC’s Ethics Office and a former official named William Hinman. In a statement released on Feb. 15, Empower Oversight disclosed that the SEC’s division is in the final stages of completing its open investigation.
One of the key issues under scrutiny is a speech delivered by William Hinman, where he asserted that certain digital assets, including Ethereum, were not subject to SEC regulation as securities. This speech has received criticism from members of the Ripple XRP community, who argue that it unfairly favored Ethereum and potentially gave it an advantage over other digital assets. Empower Oversight further supported these concerns by presenting evidence that individuals from Ethereum, such as co-founders Joseph Lubin and Vitalik Buterin, were involved in drafting Hinman’s speech.
Empower Oversight also accused Hinman of participating in matters where he held a financial stake. They claimed that he “blatantly disregarded” instructions not to meet with specific individuals, including his former employer Simpson Thacher, a member of the Ethereum Enterprise Alliance (EEA). Interestingly, after leaving the SEC in December 2020, Hinman returned to Simpson Thacher as a partner. It is worth noting that Hinman’s actions regarding Ethereum occurred around the same time the SEC sued Ripple, alleging that XRP was an unregistered security.
The accountability group, Empower Oversight, officially brought these concerns to the attention of the SEC’s Office of Inspector General in May 2022. Frustrated by the lack of transparency and information provided by the SEC, the group has threatened the financial regulator with a lawsuit if it fails to disclose information regarding its investigations by Feb. 23. Empower Oversight has accused the SEC of stonewalling their inquiries since they filed a Freedom of Information Act (FOIA) in May 2023. However, the group acknowledged that the silver lining in this situation is the fact that an active inquiry by the inspector general is currently underway.
The investigation being conducted by the SEC’s Office of Inspector General into cryptocurrency-related conflicts of interest is a significant development that raises questions about the ethical behavior within the SEC. The controversy surrounding Hinman’s speech and alleged financial stake highlights the need for transparency and accountability in the cryptocurrency industry. As the investigation nears its conclusion, the findings will likely influence the regulatory landscape for digital assets and shape the relationship between the SEC and the cryptocurrency community.
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