Deaton Explains How Judge Torres Could Grant Ripple an Outright Win

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Attorney Deaton said Judge Torres could reject SEC’s wild sweeping theory and give Ripple an outright win.

As the ongoing lawsuit between the SEC and Ripple nears its end, several members of the XRP community have started predicting the outcome of the case. While some XRP enthusiasts believe an outright win is possible for Ripple, others think the blockchain company would lose its case against the Securities and Exchange Commission.

Yesterday, an XRP fan with the username @JayVTheGreat led those who believed Ripple would lose, claiming in a Twitter thread that Ripple’s XRP transactions are securities. He expressed confidence that Ripple would lose because the blockchain company “did not put up a good argument against anything but the Blue Sky laws.” 

I’m saying ripple’s transactions are.. I can’t think of how they will get around it. Also another reason why I’m convinced they’ll lose is notice how they really didn’t put up a good argument about anything but the blue sky laws on whether an actual contract is needed or not.. https://t.co/zlcJy9G4ii

— Jay’V🪬 (@JayVTheGreat) January 20, 2023

Attorney Deaton Thinks Otherwise

Reacting to @JayVTheGreat’s speculation, Crypto Law founder attorney John Deaton brought smiles to the faces of XRP community members by explaining how Judge Analisa Torres could give Ripple an outright win. 

In a Twitter thread yesterday, Deaton explained that while he does not believe Judge Torres agrees with the Blue Sky argument, he speculates that Ripple could win the SEC in the legal brawl that has lingered for more than two years.

Here is how the Judge could give Ripple an outright win. People are focusing on the pre-1933 Blue Sky argument. That argument is for the 2nd Circuit and Supreme Court. I don’t believe Judge Torres agrees with that argument although the current Supreme Court could. https://t.co/KBvy7brTSv

— John E Deaton (@JohnEDeaton1) January 20, 2023

Reasons Behind Deaton’s Prediction

According to Deaton, Judge Torres could get around Ripple’s XRP sales since the SEC did not apply the Howey Test to every transaction. Instead, the regulator claimed that “XRP itself is a security.” 

“Essentially, the SEC is applying the old “But For” causation test in this case. The SEC essentially argues but for Ripple executives (Jed, Chris) creating XRP, XRP wouldn’t exist. But for Ripple helping create a secondary market for XRP, a secondary market wouldn’t exist,” said attorney Deaton. 

The SEC also argues that past and present XRP sales are securities. The regulator argues that countries outside of the U.S. can only declare XRP as a currency due to Ripple’s efforts, Deaton said, adding:  

Deaton asserted that Judge Torres could grant Ripple an outright win by rejecting the SEC’s sweeping claims on the ground that the regulator did not prove a specific transaction.

“In other words, if El Salvador would have made XRP legal tender like it did w/BTC, the SEC is claiming it would all be due to Ripple’s past, present, and future efforts. It is an extraordinarily all-encompassing theory. But that’s not how securities laws get applied.”

Deaton Slams SEC Over Its Common Enterprise Argument

The XRP community attorney slammed the SEC for “being all over the place” with identifying the “common enterprise” prong of the Howey Test. 

At first, the SEC argued that Ripple was a common enterprise. The regulator later changed its stance on the matter after one of its experts claimed that the common enterprise was the entire XRP ecosystem, including XRP holders, exchanges, and independent developers.

After a series of opposition from Ripple and the XRP community, the SEC abandoned the expert’s testimony.

“Instead, the SEC argued XRP represents the common enterprise while also arguing XRP represents all of the promises and efforts made by Ripple,” said Deaton.

He asserted that the SEC claims that XRP meets the second and third prongs of the Howey Test through the argument. The SEC’s claim about XRP is the reason why Deaton believes Judge Torres would not grant the regulator “summary judgment in the manner they have requested.” 

Meanwhile, Deaton predicts the possibility of Judge Torres denying both Ripple and the SEC’s summary judgment motions, which could take the case to a jury. He added:

“What some people have failed to consider is that Judge Torres could say denied to both summary judgment motions and it goes to a jury. Until we get to read all the Rule 56 facts and read all the underlying evidence relied upon, it’s near impossible for me to predict anything more

The SEC’s claims unconstitutionally expand Howey beyond recognition. Remember, the SEC admitted in its response to my Writ of Mandamus that it is the Court that will decide whether the SEC’s theory is valid. I’m confident Judge Torres rejects the SEC’s wild sweeping theory.”

Deaton’s recent comment on the lawsuit comes days after he said those predicting an SEC win are overstating the regulator’s chances. 

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