Pro-XRP lawyer and founder of CryptoLaw, John Deaton, has boldly challenged the United States Securities and Exchange Commission (SEC) regarding their classification of secondary XRP sales as securities. Deaton responded to a Twitter post by Marc Fagel, a former partner at Gibson law firm, by presenting a hypothetical scenario involving the progressive movement of XRP as a form of payment from Ripple to four other entities.
In his argument, Deaton claimed that if the Howey Test is not applied at the time of each transaction. XRP is considered a security solely because Ripple sold it to an individual named Johnny Crypto, then Johnny Crypto, his employee, the employee’s friend, Jeremy Hogan, Uphold, and TapJets would all be considered part of a joint enterprise with Ripple.
Deaton’s Argument Highlights Secondary XRP Sales Distinction
Deaton emphasized that secondary XRP sales should not be categorized as securities. He also referred to the 2nd Circuit, which states that when a purchaser’s motivation is to use or consume the item purchased, securities laws do not apply.
Deaton had previously raised questions about SEC Chair Gary Gensler’s approach to cryptocurrencies and the Howey Test. According to Deaton, Gensler’s perspective on how cryptocurrencies should be classified and regulated deviates from the court’s 1946 definition of securities in connection with the Howey Test.
The Howey Test determines whether a transaction qualifies as a security by evaluating whether it involves an investment of money, a joint enterprise, and a reasonable expectation of profit derived from the efforts of others. Deaton argues that the four other entities receiving XRP tokens cannot logically be considered part of a joint enterprise with Ripple Labs.
The Ripple vs. SEC case, which revolves around the sale of XRP as unregistered securities, has dragged on for an extended period, but there is hope it will conclude in the coming months. Ripple is optimistic that the case will be resolved favorably by the end of the year. Brad Garlinghouse, Ripple’s CEO, is particularly hopeful that a verdict will be reached in the first half of the year. Despite initial resistance from regulators, the release of the Hinman speech has proven to be a significant turning point in the ongoing case.
Related Reading: | SEC vs. Ripple Lawsuit Nears Conclusion As Legal Experts Analyze Potential Outcome