Attorney John E. Deaton outlined why the US Securities and Exchange Commission is extremely unlikely to succeed in its lawsuit against Ripple Executives Brad Garlinghouse and Chris Larsen in a lengthy conversation on Twitter yesterday.
In the SEC complaint against Ripple, the thread was started by attorney Sasha Hodder of CryptoLaw, a friend of the court for XRP holders. According to Hodder, Larsen and Garlinghouse will owe the SEC about $500 million and $150 million if they lose their legal battle.
Deaton clarified in his thread that the SEC must show that both executives were “reckless” in failing to recognize that XRP was a security for them to lose. The attorney claimed that it had to be clear to the average person that XRP was a security. However, Deaton suggests that detailing the facts is a near-impossible task.
Deaton begins by explaining how XRP was classified as a virtual currency by the US Government Accountability Office in 2014 and by the Financial Crimes Enforcement Network in 2015. He also noted that Hinman’s lecture from 2018 emphasizes that Bitcoin, Ethereum, and other decentralized networks do not constitute securities, which the SEC recently declared should serve as guidance.
He further noted that a cryptocurrency asset holders could utilize right away for payments is unlikely to pass Howey’s test and, as a result, cannot be categorized as a security, according to the SEC’s 2019 digital asset framework. Deaton notes that Larsen had demonstrated to regulators, including the SEC, seven years before the lawsuit how Ripple intended to transform payments using XRP.
Deaton thinks it is unlikely that the SEC will be able to demonstrate that Larsen and Garlinghouse acted recklessly in light of all of these and other evidence cited.
“I’ve written (meaning my law firm) and/or argued hundreds of summary judgment motions during the last 20 years, and I can confidently say Garlinghouse and Larsen have a better chance at summary judgment on Recklessness than the SEC does,” Deaton wrote.
Remarkably, Jeremy Hogan, another advocate for Ripple, made a similar point. Hogan believes that the SEC has a better chance of winning against Ripple than it does against Garlinghouse and Larsen.
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Notably, the SEC accused Ripple of assisting and abetting the offer and sale of unregistered securities in their lawsuit against Ripple in December 2020, which included the names of Garlinghouse and Larsen. Notably, the legal dispute has now lasted for more than two years.
The Ripple executives attempted to have the case against them dismissed in March. Still, Judge Analisa Torres refused, according to The Crypto Basic, despite the substantial evidence cited by Deaton yesterday.