John Deaton Advocates for Transparency: Calls for SEC Report on Ethereum and Ripple XRP Controversy

John Deaton, a prominent lawyer known for his advocacy within the cryptocurrency space, has recently underscored the necessity for greater transparency in the case involving former SEC Director William Hinman. Deaton is urging the U.S. Securities and Exchange Commission (SEC) to disclose the findings of the SEC Inspector General’s investigation into potential conflicts of interest associated with Hinman’s actions.

The heart of this ongoing controversy revolves around the SEC’s approach to cryptocurrency regulation, with significant implications for major cryptocurrencies like ethereum and Ripple’s XRP. The case has garnered widespread attention, as it raises questions about the integrity and transparency of regulatory practices within the SEC.

In a series of posts on the social media platform X, Deaton called upon both outgoing SEC Chair Gary Gensler and the anticipated new Chair, Paul Atkins, to release the Inspector General’s report. Deaton stressed that a thorough investigation would reveal if any breaches of U.S. financial conflict of interest laws occurred during Hinman’s tenure. Furthermore, Deaton asserted that the public deserves transparency in understanding the findings of this investigation.

According to Deaton, even if there is no intentional wrongdoing, the available evidence indicates a clear violation of federal law, specifically 18 USC 208, which prohibits conflicts of interest for government officials. While the Inspector General’s report may not find explicit procedural misconduct, Deaton insists that the SEC has a duty to provide clarity to the public regarding the outcome of the investigation.

The controversy traces back to a pivotal moment in June 2018 when William Hinman, then Director of the SEC’s Division of Corporation Finance, declared that Ether, the cryptocurrency native to the Ethereum blockchain, was not considered a security. This announcement had a profound impact on the crypto market, earning the moniker “Ether’s free pass.” However, subsequent revelations have raised serious concerns about potential conflicts of interest involving Hinman.

Empower Oversight, a non-profit organization dedicated to government accountability, unveiled documents hinting at Hinman’s business ties to Simpson Thacher & Bartlett, his previous law firm. According to the organization, Simpson Thacher is affiliated with the Enterprise Ethereum Alliance, which champions Ethereum. Documents obtained via the Freedom of Information Act reveal that the SEC’s Ethics Office had previously advised Hinman to avoid engagements related to Simpson Thacher due to his financial interests. Despite these warnings, Empower Oversight alleges that Hinman did not heed this guidance, prompting questions about whether he breached federal ethics regulations.

Under mounting public scrutiny, the SEC’s Inspector General has completed its investigation into Hinman’s actions. Despite the conclusion of the inquiry, the findings remain undisclosed, prompting further calls for transparency. Empower Oversight has criticized the Ethics Office’s failure to enforce Hinman’s recusal, highlighting broader concerns about the SEC’s internal oversight mechanisms. Tristan Leavitt, President of Empower Oversight, emphasized the breakdown of these mechanisms, stating that those responsible for ensuring Hinman adhered to ethical standards failed in their duties.

The debate over the SEC’s regulatory approach extends beyond Hinman, encompassing former SEC Chairman Jay Clayton. On Clayton’s final day in office in 2020, the SEC initiated legal proceedings against Ripple Labs, accusing the company of selling XRP as a security. This decision has sparked controversy, with critics questioning why Ethereum was exempted from similar scrutiny, while Ripple faced significant regulatory challenges.

Jay Clayton, who has been nominated by former President Donald Trump for the position of U.S. Attorney for the Southern District of New York, has faced increased pressure due to his involvement in the Ripple lawsuit. The unresolved issues surrounding Clayton and Hinman are contributing to skepticism about the SEC’s stance on cryptocurrency regulation.

This skepticism has been echoed by influential figures in the crypto community. Ripple CEO Brad Garlinghouse and Tesla CEO Elon Musk have both voiced criticism of the SEC’s recent actions, advocating for a more favorable regulatory environment for cryptocurrencies in the United States.

As the crypto community and legal experts continue to scrutinize the SEC’s actions, the call for transparency and accountability remains a focal point. The Hinman case serves as a critical test of the SEC’s commitment to ethical standards and fair regulatory practices within the rapidly evolving cryptocurrency landscape.