Deaton Says People Predicting SEC Win Over Ripple Are Overstating Regulator’s Chances

– Advertisement –

Attorney Deaton comments on the SEC’s common enterprise argument.

Prominent cryptocurrency lawyer John Deaton said people predicting an outright SEC win over Ripple in the ongoing lawsuit are overstating the regulator’s chances.

According to Deaton, the SEC has stretched its allegations too far, especially in its analysis of the second prong of the Howey Test – Common Enterprise.

That’s not how a Howey analysis works and it certainly doesn’t make a token itself always a security no matter the circumstances.

People predicting the SEC will definitely win and that #XRP is doomed are overstating the SEC’s chances. The SEC’s allegations are stretched too far.

— John E Deaton (@JohnEDeaton1) January 16, 2023

Attorney Deaton asserted that the common enterprise prong had been a major problem for the Securities and Exchange Commission throughout the case.

The SEC had initially argued that Ripple was a common enterprise. However, the SEC abandoned this argument after Ripple forced the regulator to admit that owning XRP does not give holders a right or interest in the blockchain company, says attorney Deaton.

XRP Holders Make the Common Enterprise Argument a Problem for SEC

He added that XRP holders also played a major role in making the common enterprise a real problem for the SEC. Per Deaton, XRP holders, conferred with an amici curiae status in the lawsuit, submitted 3K affidavits stating that most XRP holders receive financial benefits independent of Ripple.

Other counter-arguments XRP holders made through Deaton include the fact that XRP’s purchasers were unaware of Ripple and that many acquired the sixth-largest cryptocurrency for non-investment purposes, etc.

Furthermore, XRP holders also challenged one of the SEC’s expert witnesses, who the agency hired to give a report about the token’s investors. Deaton said the expert witness was shown one of his Twitter threads during expert deposition cross-examination, and the expert confirmed that he/she did not interview a single XRP holder.

“This so-called Expert testified on cross that his/her opinion may have been different if he/she had been aware of the claims and evidence being submitted by my 75K friends and me,’ Deaton added.  

Ripple and XRP Holders Forced SEC to Abandon Its Expert

Following Ripple and XRP holders’ efforts, the expert made a U-turn, arguing that the blockchain company was not the common enterprise but the entire XRP ecosystem, including crypto exchanges and investors.

Deaton noted that his request to comment on the argument was not initially granted. However, he was asked to reapply if the Judge used the expert’s testimony in the summary judgment. In addition, Ripple filed a Daubert challenge to the expert’s claim.

Interestingly, the SEC abandoned the expert, Deaton said. He added that the Securities and Exchange Commission did not cite or reference any comment from the expert. The founder of Crypto Law said the common enterprise could not be Ripple, adding that since the regulator abandoned the expert, there is no XRP ecosystem testimony before Judge Analisa Torres.

The SEC’s recent claim is that XRP is a common enterprise. It further argues that the token represents the inducements Ripple has used to lure investors since 2013 to date, which implies that the regulator is arguing that XRP satisfies both the second and third prong of the Howey Test, Deaton noted.

It is worth noting that the SEC’s inconsistent argument about the common enterprise has boosted Deaton’s confidence that the regulator’s “allegations are stretched too far.” Deaton’s comment comes days after he said SEC’s lawyers are 100% transactional.

“A year and a half ago, I made the comment that the SEC lawyers are transactional in their arguments. They say whatever they think helps them at the moment, giving no weight or consideration to any statements previously made,” he said.

– Advertisement –