Lawsuit Alleges Former SEC Officials Had Crypto-Related Conflicts of Interest

Empower Oversight, a nonprofit watchdog agency, has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in an effort to obtain records related to potential conflicts of interest involving former SEC officials and their engagement with the cryptocurrency industry. The lawsuit specifically focuses on William Hinman, former director of the SEC's Corporation Finance Division, and Jay Clayton, former SEC Chair.

According to the lawsuit, Empower Oversight seeks to ascertain whether there were crypto-related conflicts of interest involving Hinman and Clayton during their time at the SEC. Hinman has since joined Simpson Thacher & Bartlett as a senior adviser, while Clayton has joined Sullivan & Cromwell as a senior policy adviser.

The lawsuit alleges that Hinman received a pension from Simpson Thacher while serving at the SEC. This connection is linked to a 2021 report by Insider. Notably, during Hinman's tenure at the SEC, the law firm was a member of the Enterprise Ethereum Alliance, an organization focused on advancing the Ethereum network.

In a 2018 speech at the Yahoo Finance All Markets Summit, Hinman made a declaration regarding the Ethereum network, stating that "current offers and sales of Ether are not securities transactions." Following this statement, the value of Ether experienced a significant increase. The lawsuit highlights that the SEC filed a lawsuit against Ripple, a rival of Ethereum, alleging that its cryptocurrency XRP constituted a security under federal securities law. Hinman's speech has been referenced in Ripple's ongoing case against the SEC, and related documents were confidentially released to Ripple in October.

Empower Oversight has previously filed Freedom of Information Act (FOIA) requests related to potential conflicts of interest. In 2022, the organization released 200 emails that contained correspondence between Hinman and SEC personnel.

The lawsuit also brings attention to Jay Clayton, who served as SEC Chair from 2017 to 2020. Clayton is mentioned in relation to potential conflicts of interest. The lawsuit notes that Clayton publicly stated Bitcoin was not a security while at the SEC. However, shortly after leaving the SEC, Clayton joined One River Asset Management, a cryptocurrency hedge fund focusing exclusively on Bitcoin and Ether. In an interview with Blockworks, Clayton had previously stated that he did not anticipate involvement with digital asset companies after leaving his SEC position.

This is not the first time Empower Oversight has taken the SEC to court over FOIA requests. In December 2021, the organization filed a complaint in the Eastern District of Virginia. Empower Oversight seeks transparency from the SEC regarding these alleged conflicts of interest and hopes the SEC will conduct thorough searches to fulfill their FOIA requests. The organization also seeks an award of attorney fees and costs incurred during the legal proceedings.

Tristan Leavitt, President of Empower Oversight, expressed dissatisfaction with the SEC's lack of transparency on this issue, stating that the agency's actions have exacerbated the situation. Empower Oversight remains committed to shedding light on the alleged conflicts of interest within the SEC.