Watchdog Sues SEC Over ‘ETH Gate’

Empower Oversight, a government watchdog organization, has filed a lawsuit against the Securities and Exchange Commission (SEC), accusing the agency of failing to comply with a Freedom of Information Act (FOIA) request. This request aimed to uncover potential conflicts of interest and biases within the SEC concerning its regulation of cryptocurrencies, particularly Ethereum.

Investigation Into SEC’s Ethereum Dealings Continue

The dealings, commonly referred to as ‘ETH Gate,’ highlight deepening concerns over the consistency and transparency of the SEC’s approach to digital asset regulation.In a public statement, Tristan Leavitt, President of Empower Oversight, criticized the SEC’s handling of their FOIA request:

By slow walking their response to our FOIA request, the SEC is stonewalling Empower’s oversight into SEC officials with conflicts of interest on cryptocurrency issues. The public has a right to see all documents that relate to how these public officials violated ethics guidance and how the agency failed to hold them accountable.

The core of the ‘ETH Gate’ controversy revolves around the actions and speeches of two key former SEC figures: William Hinman, the Director of the Division of Corporate Finance from May 2017 to December 2020, and Jay Clayton, former SEC Chairman.

Hinman’s June 14, 2018, speech, where he publicly stated that Ethereum (ETH) was not considered a security by the SEC, has been a focal point of scrutiny. This position seemingly contradicted the SEC’s later aggressive stance against Ripple Labs’ XRP, which the SEC classified as a security towards the end of Clayton’s tenure.

Empower Oversight’s FOIA requests, initiated in August 2021, sought to uncover the extent of potential biases and ethical violations within the SEC’s dealings with cryptocurrencies. The organization’s investigation was partly spurred by revelations about Hinman’s financial ties to his former employer, Simpson Thacher, which is known to have interests in promoting Ethereum.

These revelations raised questions about the impartiality of the SEC’s regulatory actions and the potential for conflicts of interest at the highest levels of the agency.

Despite the SEC’s initial agreement to search for relevant records based on terms provided by Empower Oversight, the agency has been accused of stalling and failing to conduct these searches, leading to multiple lawsuits aimed at compelling the SEC to release the requested documents. Empower Oversight’s persistent legal efforts have so far resulted in the SEC turning over 324 pages of documents following a lawsuit related to a December 2022 FOIA request.

The latest lawsuit filed by Empower Oversight in the United States District Court for the District of Columbia seeks to enforce compliance with this December 2022 FOIA request. Leavitt’s communication on X (formerly Twitter) emphasizes the broader stakes of their campaign: “Empower Oversight has filed a new lawsuit against the SEC because of its refusal to comply with FOIA. #ethgate […] So the fight continues for transparency, without which accountability is never possible.”

‘ETH Gate’ not only exposes potential conflicts of interest and selective enforcement within the SEC but also raises significant questions about the agency’s regulatory framework and its impact on the crypto market. As this legal battle unfolds, it promises to provide critical insights into the SEC’s internal decision-making processes, potentially influencing future regulatory policies and the landscape of digital asset regulation.

At press time, Ethereum (ETH) traded at $3,376.

Featured image from Reuters, chart from TradingView.com