SEC's mess is getting even messier
Abraham George Market Musings
The in-person hearing the court had with the SEC and Ripple yesterday turned out to be a disaster for the SEC. Call it a plane crash or a train wreck, the SEC made its position much worse in front of the judge and with the public.
First, they thrust a very young and inexperienced counselor to represent them in the courts. This was her first appearance representing the SEC on this case. She was a disaster. Looked like she read all about the case only that morning. She was stuttering, repeating herself, and losing it completely when Judge Sarah Netburn cross-examined her.
The hearing was all about William Hinman the former commissioner of the SEC getting attorney-client privilege. The judge had already denied that but this was a second chance for the SEC to explain its position in person. In the last hearing, the judge had warned the SEC that, “you can’t have a second bite at the apple” meaning you can’t change your position to what has been stated in courts before. That’s exactly what the SEC did. All along the SEC has been flip-flopping as their whole arguments have been built on lies. Now the counselor was caught in person that the SEC can’t even remember their own lies.
SEC changed their position to say that William Hinman’s infamous pronouncement in 2018 at the Yahoo conference stating that Ethereum was not a security was merely his personal opinion. The speech helped Ethereum prices to go through the roof and helped Hinman benefit 15 mln dollars from the law firm Simpson Thacher who was promoting Etherium. To be fair to Ripple when they are being accused of being a security, the judge asked the SEC to provide all emails pertaining to the internal discussions (68 of them) without any redactions, the SEC became very defensive. They started to argue that it was market guidance and that they should have the attorney-client privilege to not divulge the e-mails. The SEC had already made a mess of themselves but with yesterday’s hearing, they made it worse. The counselor at one stage said it was Hinman’s personal opinion and at another stage said it was market guidance from the SEC. From the body language of the judge and her tone with the SEC counselor, it was visibly clear that the judge was very irritated.
However, when Matt Solomon the Ripple counselor approached the bench, he was very structured and had all points clearly laid out in making their case. It was clear from the judge that she accepted those points.
What is clear from this case so far is that Ripple under no circumstances is not losing this case but what is not clear is when will this finally settle. I think the SEC already knows they have lost the case but are looking for other means to delay this further.
The judge in a week or so should come out with her opinion on this case and I think she should be coming very hard on the SEC. As opined by a former SEC commissioner it is very unlikely the judge will go against the will and desires of about 68,000 XRP investors who have filed a class-action case against the SEC through the firm Crypto -law owned by John Deaton.
Gary Gensler, the SEC Chairman claims that the only thing he thinks of when he wakes up and before he goes to bed is the welfare of the retail investors and has not spoken a single word in this case. Gensler who worked 18 years for Goldman Sachs before working for CFTC and now the SEC is part of the establishment to protect the interest of the banks.
When Jay Clayton the former SEC Chairman filed a case against Ripple one hour before he left office in 2020 to work for a hedge fund called “One River” that specialized in trading in Bitcoin and Ethereum, he did not in his wildest dream expect that he was stirring in SEC up into a hornet’s nest that will expose all their corruption. Now SEC is fighting hard to come out with the least amount of scars.
The SEC will be forced to settle on this case with Ripple and Ripple will get a slap on its wrist but they should get full clarity that they are not a security. They’ll be able to re-establish their operations and credibility in the US. If the case goes to summary judgment the SEC will lose it all.
To top it up, Senators Cynthia Lummis and senator Kristen Gillibrand have proposed ‘The Responsible Financial Innovation Act’ on June 7th aiming to create clarity and safety for regulators and business owners alike when it comes to cryptocurrency. They have also opined that most cryptos are commodities and should come under the purview of the CFTC. This is exactly what Ripple’s Chairman Chris Larsen and the CEO Brad Garlinghouse have been clamoring for many years. Gary Gensler will be a very unhappy man and if it’s any consolation, the SEC’s problems will start to mount now.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is a co-founder of a new hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.