SEC Under Fire: Empower Oversight Files Lawsuit for Non-Compliance with FOIA Request in ETHGate Case

• Empower Oversight has sued the SEC for failing to comply with a Freedom of Information Act (FOIA) request related to conflicts of interest in crypto from some of its former leaders.
• The lawsuit alleges that for nine months, the SEC has been ducking requests for documents on why former director Bill Hinman declared ETH not a security, only for the agency to turn around on the altcoin.

The US SEC is under fire, and this time, it’s being held accountable for its failure to comply with a constitutional request for documents related to its handling of Ethereum.

In a lawsuit filed in the District of Columbia, Empower Oversight Whistleblowers & Research (EMPOWR) accuses the SEC of refusing to comply with its Freedom of Information Act (FOIA) request.

.@EMPOWR_us has filed a new lawsuit against the @SECGov because of its refusal to comply with FOIA. #ethgate pic.twitter.com/HRET2uEonU

— Tristan Leavitt (@tristanleavitt) March 18, 2024

Empower first requested the records in May last year, and under US federal laws, the agency has to respond in 20 days. However, the SEC has been delaying the search by asking Empower additional questions and asking it to narrow down its requests. It then went on for months without responding to the repeated requests. Nine months later, the SEC has yet to provide a single page for the organization.

Commenting on the lawsuit, Empower president Tristan Leavitt stated:

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.

SEC Under Fire Over ETHGate—Could XRP Be the Big Winner?

The tiff between Empower and the SEC boils down to ETHGate, the scandal over how the agency handled the classification of Ethereum. It began with former director William Hinman declaring that ETH wasn’t a security in 2017. Jay Clayton, the chair before Gary Gensler, also stamped Hinman’s views and used them in speeches to clarify that BTC and ETH were exempted from securities classification.

Then it all changed and the SEC switched up on the second-largest crypto. While Bitcoin continued to enjoy the distinction of not being a security (capped by the spot ETF approval), Ethereum has fallen out, with the agency stating that it can’t give the same distinction to the largest altcoin.

But it goes deeper; Hinman was an attorney with Simpson Thacher, a New York law firm that continued to pay him millions of dollars even after he joined the agency. Simpson Thacher was part of an alliance founded to push Ethereum adoption. After he left the SEC, the agency filed a lawsuit against Ripple that same month.

Most curiously, the SEC knew that Hinman’s conduct was unacceptable. The agency’s ethics department had warned Hinman to stop dealing with Simpson Thacher and rescue himself from matters relating to the firm, but he didn’t heed the warning.

It doesn’t stop there; former chair Jay Clayton, who filed the securities violation lawsuit against Ripple, joined One River Asset Management, an investment firm that focuses exclusively on ETH and BTC and not XRP, within weeks of leaving the agency.