Thread by @s_alderoty

1/ It’s been 5 years since Bill Hinman gave his infamous speech – and through the SEC’s lawsuit against @Ripple (and 7 court orders), we can finally share what happened behind the scenes through the now public emails / drafts of the speech.

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.

3/A refresher: Hinman, as Head of the SEC’s Corp Fin, gave a speech in June 2018 declaring that a token is not a security once it becomes “sufficiently decentralized” and he invented factors to consider when making a “sufficiently decentralized” determination.

4/Although Hinman claimed that the speech was his personal view, he and the SEC touted it as guidance. Then SEC Chair Jay Clayton publicly pointed to it. Despite the SEC repeatedly flip-flopping on the significance of the speech in litigation, it remains on the agency’s website.

5/ Now let’s look at what senior SEC officials directly said to Hinman about his speech as he was drafting it.

6/Head of Trading and Markets (T&M) said, “because the list of factors is so extensive – and appears to include things that go beyond the typical Howey analysis – we have concerns this might lead to greater confusion on what is a security.” Hinman ignored those concerns.

7/T&M directly asked Hinman to tie his newly invented factors “more closely and explicitly to the Howey analysis.” Again, Hinman ignored the suggestion.

8/Office of General Counsel (OGC) and T&M called this factor legally irrelevant “Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset?” Hinman kept it.

9/T&M and OGC noted Hinman skipped over the threshold jurisdictional question of “whether a digital asset meets the legal standards of a security.” He jumped to asking whether SEC oversight could (in Hinman’s view) be beneficial. Hinman ignored this “regulatory gap.”

10/ On June 4, Hinman wrote that he didn’t see a “need to regulate ETH as a security” and would call Buterin later that week to confirm “our understanding.”

11/On June 12, OGC expressed its “reservations about including a statement directly about Ether in the speech … because it would make it difficult for the agency to take a different position on ETH in the future.” ETH remained as a cited example.

12/So what should happen now? First, remove the speech immediately from the SEC’s website…

13/An investigation must be conducted to understand what or who influenced Hinman, why conflicts (or, at the very least, appearances of conflicts) were ignored, and why the SEC touted the speech knowing that it would create “greater confusion.”

14/ And finally, Hinman’s speech should never again be invoked in any serious discussion about whether a token is or is not a security. Unelected bureaucrats must faithfully apply the law within the constraints of their jurisdiction. They can’t - as Hinman tried - create new law.