Pro-crypto lawyer Bill Morgan recently expressed his thoughts on Twitter, discussing the strategies that the U.S. Securities and Exchange Commission (SEC) might employ in their attempt to establish XRP as a security.
Alderoty’s View on SEC’s Common Enterprise Argument
Attorney Morgan’s analysis was prompted by Ripple’s Chief Legal Officer, Stuart Alderoty’s comment regarding the SEC’s unsuccessful attempt to equate the common interest with a common enterprise in the landmark 1946 Howey case.
In the Howey case brief, he argued that the SEC failed to successfully argue that an investment in a common enterprise was unnecessary if there was a common interest.
Furthermore, he firmly stated that the SEC was incorrect in 1946 and that their stance remains erroneous even today, emphasizing that a common interest does not equate to a common enterprise.
Related article: XRP Price at Risk of Dropping Below $0.40; Ripple Moves 104M XRP
How WIll SEC Prove XRP Is a Security?
In response to the post, attorney Morgan expressed his view that the SEC aims to significantly expand the scope of the Howey test to encompass cryptocurrencies.
According to attorney Morgan, the SEC intends to broaden the application of the Howey test to include cryptocurrencies by taking an expansive interpretation of the concept of “common enterprise.” He noted that the regulator has emphasized the term “common” while intentionally avoiding using the word “enterprise.”
The Ripple attorneys have realised that the SEC focuses on the word ‘common’ and are trying to broaden the Howey test by arguing a point they failed on in the Howey case itself. /4
— bill morgan (@Belisarius2020) May 14, 2023
The legal expert further mentioned that if the SEC’s initial argument falls short, they will resort to the “fungible argument” as a desperate measure. Attorney Morgan provided evidence demonstrating how the SEC contended that “all units of XRP are fungible with each other” and that their prices exhibit simultaneous movement.
Notably, Ripple’s legal counsel effectively countered the SEC’s fungible argument in their motion for summary judgment by comparing it to gold.
The fact that you could say the same about an ounce of gold is no problem for the SEC. However, this is just common interest. Ripple’s attorneys obviously worked out the SEC was trying to pull a swifty & surreptitiously argue an old point the Supreme Court had rejected in Howey/7
— bill morgan (@Belisarius2020) May 14, 2023
Related also: Brad Garlinghouse: Ripple v. SEC Case Could Resolve Within 6 Months
Is Cryptocurrency Safe?
Morgan cautioned that if Judge Analisa Torres permits the SEC to equate common enterprise with a common interest, it would set a precedent for the regulator to employ the same argument against other cryptocurrencies.
He further noted that the SEC has already begun employing the fungible argument to target the broader crypto industry, as evident in their complaint against Bittrex regarding Algorand (ALGO).
So Ripple’s lawyers in Ripple’s SJ motion attacked the fungible (common interest) point and actually used the example of gold to make their point /8 pic.twitter.com/ISdaqmLFvy
— bill morgan (@Belisarius2020) May 14, 2023