John Deaton, a prominent cryptocurrency attorney, claimed that those who predict the SEC will defeat Ripple outright in the pending lawsuit exaggerate the regulator’s chances.
Deaton argues that the SEC has overstated its claims, particularly regarding its analysis of the second prong of the Howey Test – Common Enterprise.
According to attorney Deaton, the Securities and Exchange Commission had a significant issue with the common enterprise prong throughout the case.
Ripple was first considered a common enterprise, as stated by the SEC. However, after being compelled by Ripple to acknowledge that possessing XRP does not provide holders with a right or interest in the blockchain corporation, the SEC dropped this defense, according to attorney Deaton.
Common Enterprise Arguments pose a problem for SEC
He further stated that XRP owners also contributed significantly to the joint enterprise being a serious issue for the SEC. According to Deaton, those who possess XRP have been granted amici curiae status in action and have provided 3K affidavits confirming that the majority of XRP holders derive income from sources other than Ripple.
Other objections raised by XRP holders via Deaton included the fact that many XRP buyers did not know about Ripple and did not buy the sixth-largest cryptocurrency with the intention of making an investment.
The SEC recruited an expert witness to provide a report on the token’s investors, who was also called into question by XRP holders. Deaton claimed that one of his Twitter threads was revealed during the cross-examination of the expert witness in the expert deposition. The expert verified that he/she did not interview a single XRP holder.
“This so-called Expert testified on cross that his/her opinion may have been different if he/she had been aware of the claims and evidence being submitted by my 75K friends and me,’ Deaton added.
Holders of Ripple And XRP Forced SEC to Drop Its Expert
Following the efforts of Ripple and XRP holders, the expert reversed course and said that the blockchain firm included crypto exchanges and investors—was not the common enterprise but rather the entire XRP ecosystem.
Deaton added that he had first been denied permission to respond to the argument. As a result, he had to reapply if he wanted a summary judgment granted based on the expert’s testimony. Ripple also submitted a Daubert objection to the expert’s assertion.
Deaton noted that it was odd that the SEC had given up on the expert. He continued by stating that the Securities and Exchange Commission made no mention of or reference to any expert comment. Since the regulator abandoned the expert, there is no XRP ecosystem testimony before Judge Analisa Torres, according to the founder of Crypto Law, who claimed that Ripple could not be a common enterprise.
Recently, the SEC asserted that XRP is a common enterprise. Deaton pointed out that this suggests the regulator asserts that XRP fulfills the second and third prongs of the Howey Test. It also claims that the token symbolizes the inducement Ripple has employed to entice investors from 2013 to the present.
Notably, Deaton is now more convinced that the SEC’s “allegations are stretched too far” because of the regulator’s contradictory justification for the shared enterprise. Deaton’s comment comes days after he said SEC’s lawyers are 100% transactional.
“A year and a half ago, I made the comment that the SEC lawyers are transactional in their arguments. They say whatever they think helps them at the moment, giving no weight or consideration to any statements previously made,” he said.