Pro-XRP lawyer and the CryptoLaw founder John Deaton has made a bold statement implying that the United States Securities and Exchange Commission (SEC) cannot justify that secondary XRP sales are securities. In response to a Twitter post made by Marc Fagel, a former partner with the law firm of Gibson, Deaton painted a hypothetical picture of a progressive movement of XRP as a form of payment from Ripple down to four other entities.
“If you don’t apply Howey at the time of each transaction and XRP is a security per se b/c Ripple sold to a guy named Johnny Crypto then, in effect, Johnny Crypto, his employee, the employee’s friend, Jeremy Hogan, Uphold, and TapJets are all in a common enterprise w/Ripple,” Deaton said referring to all the entities involved in the progression.
To this end, he noted that secondary XRP sales do not qualify as securities. Furthermore, the Crypto Law founder referenced the 2nd Circuit which states that when a purchaser is motivated by a desire to use or consume the item purchased, the securities law does not apply.
Deaton had previously questioned SEC chair Gary Gensler over his approach towards crypto with the Howey Test.
According to him, Gensler has another thought about how cryptocurrencies should be classified and regulated and that has derailed him from the court’s definition of securities from way back in 1946 in connection to the Howey Test.
As detailed in the Howey Test, “a transaction is a security if it is an investment of money, in a common enterprise, with a reasonable expectation of profit derived from the efforts of others.” Per Deaton’s argument, the 4 other entities who received the XRP tokens cannot logically be in a common enterprise with Ripple Labs.
Markedly, the Ripple vs SEC case over the sales of XRP as unregistered securities has lingered for far too long and is hopefully coming to an end in the next few months.
Ripple is hopeful that by the end of this year, the case would have come to a positive close. Brad Garlinghouse, Ripple’s Chief Executive Officer (CEO) is more optimistic that a verdict will be given by the first half of the year. The release of the Hinman speech after so much resistance from the regulator has proven to be a game-changer in the lingering case.
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