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The watchdog group Empower Oversight Whistleblowers & Research (EMPOWR) has filed a lawsuit against the United States Securities and Exchange Commission (SEC) in an effort to compel the regulator to comply with a Freedom of Information Act (FOIA) request.
The FOIA request seeks access to communications between former SEC officials and their former and future employers, as EMPOWR alleges that these former officials may have had conflicts of interest related to cryptocurrency.
Specifically, the suit names former SEC Chair Jay Clayton, former Enforcement Division Director Marc Berger, and former Director of Corporate Finance William Hinman.
EMPOWR believes that the requested records will provide insight into whether former SEC officials had conflicts of interest when determining whether certain cryptocurrencies should be considered securities subject to SEC regulation.
Hinman, who departed from the SEC in October 2020, returned to the law firm Simpson Thacher & Bartlett LLC, where he had previously been a partner. Similarly, Berger, who left the SEC in 2021, also joined Simpson Thacher as a partner, while Clayton joined cryptocurrency hedge fund One River Asset Management in 2021.
EMPOWR has expressed concerns about potential conflicts of interest within the government's regulation of the rapidly growing cryptocurrency market.
The watchdog group highlights that Simpson Thacher was a member of the advocacy organization Enterprise Ethereum Alliance, which aimed to promote the use of Enterprise Ethereum. It is reported that Hinman received significant financial compensation from the law firm during his tenure at the SEC.
EMPOWR also questions Hinman's ongoing ties to Simpson Thacher since he delivered the speech "Digital Asset Transactions: When Howey Met Gary (Plastic)" while serving at the SEC. In that speech, Hinman stated that Ether is a commodity, which subsequently led to a significant increase in Ether's value.
Later, the SEC engaged in a legal battle with Ripple Labs, alleging that the sale of Ripple's XRP coin violated U.S. securities laws. The documents related to Hinman's speech became subject to a contentious dispute between the SEC and Ripple Labs.
This recent lawsuit is the latest development following EMPOWR's original FOIA request, filed in August 2021, which has led to a series of legal actions. EMPOWR filed a complaint in December 2021 after receiving no response from the SEC.
The regulator later admitted that its initial "no records" responses to four of the eight requested categories were erroneous, as it had discovered 1,000 pages of records from searched emails.
Having failed to persuade the SEC to expand its document search, EMPOWR submitted a new FOIA request in December 2022. The current lawsuit aims to compel the SEC to provide a response to this request.
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