In a thread today, CryptoLaw founder Attorney John Deaton explained why it would be difficult for the XRP community to successfully sue the US Securities and Exchange Commission and what the community would need to do.
It should be noted that the SEC is part of the executive branch of government. As a result, the principle of separation of powers limits the court’s ability to perform core functions such as enforcement and legal action. According to Deaton, this explains why a case against the SEC for classifying XRP as a security, like the petition for a writ of mandamus he filed in January 2021, will likely fail.
The attorney explains that, under the protections provided by the separation of powers principle, the SEC has discretion over who it sues and what claims it makes. While Deaton believes the SEC can be challenged “based on gross abuse of discretion,” the lawyer believes the court will require hard evidence.
“Who the SEC elects to sue and the specific allegations it asserts are w/in the discretionary functions of the Executive Branch,” Deaton explains. “You can challenge a decision based on a gross abuse of discretion standard (extremely high standard to meet). You need specific evidence of misconduct.”
To that end, Deaton believes an investigation into the SEC’s decision to sue Ripple and the reasoning behind its unprecedented claims is required. Furthermore, he claims that the XRP community will need to obtain subpoenas to access the emails of high-ranking SEC officials at the time who may have had the incentive to go after Ripple.
“You need specific evidence,” Deaton reiterated. “This is why we need an investigation into the decision to file the case and why it was filed, when it was filed, and how it was filed (the absurd broad allegations).”
“We need subpoena power to get personal emails between former SEC officials and interested 3rd parties. Was there a quid pro quo? There could be enough evidence to get over the hurdles and meet the high burden and not get dismissed quickly like the Madoff cases, but you need more.”
It is worth noting that, despite the SEC’s mandate to protect consumers, XRP holders have been the biggest losers in the SEC vs. Ripple case. Deaton pointed out in his writ of mandamus that the SEC’s determination that XRP is a security is unprecedented in over 70 years of securities law. It contradicts previous advice, such as Howey’s test. Notably, an investment contract can package anything as a security. However, this does not make the underlying asset security in and of itself.
Notably, Deaton revives this argument in his request to file an amicus brief in support of LBRY’s Motion To Limit The Remedies against the SEC.