SEC Inspector General investigating crypto conflicts of interest within federal agency

The US Security and Exchange Commission’s (SEC) Office of Inspector General (OIG) is investigating cryptocurrency-related financial conflicts of interest identified by the accountability group Empower Oversight.

In a Feb. 15 statement, Empower Oversight disclosed that the SEC’s division was in the “final stages of completing” an open investigation into matters relating to the failures of the SEC’s Ethics Office and a former official, William Hinman.

Hinman is accused of participating in matters where he held a financial stake, notably delivering a contentious speech asserting that specific digital assets, such as Ethereum, were not subject to SEC regulation as securities.

Critics within the Ripple XRP community contend that Hinman’s speech unfairly favored Ethereum, potentially giving it an edge over other digital assets in the market.

Empower Oversight emphasized its concerns by presenting documentation indicating that key figures from Ethereum, including co-founders Joseph Lubin and Vitalik Buterin, were involved in drafting the infamous speech.

In addition, the watchdog group also declared that Hinman “blatantly disregarded” instructions from his former employer, Simpson Thacher, a member of the Ethereum Enterprise Alliance (EEA), not to meet with individuals while working at the SEC.

“When Hinman departed the SEC in December 2020, he returned to Simpson Thacher as a partner. That same month the SEC sued Ripple, alleging XRP was an unregistered security,” Tristan Leavitt, president of Empower Oversight wrote.

This matter was officially brought to the attention of the OIG in May 2022.

Threatens Lawsuit

Empower Oversight has threatened the financial regulator with a lawsuit if it fails to provide information regarding its investigations by Feb. 23.

The group noted that the SEC has failed to provide information about the case since it filed a Freedom of Information Act (FOIA) in May 2023.

Leavitt said:

“The silver lining is that now we know one reason for the stonewalling is that there actually is an active inquiry by the inspector general, which is almost done. However, whether the OIG report thoroughly addresses all the issues we raised remains to be seen because we don’t know the exact scope of the inquiry. The SEC’s OIG needs to get this right and help prevent similar conflicts of interest from undermining public faith in the SEC’s work in the future.”