Renowned Crypto Lawyer John Deaton Predicts Ripple Ruling Outcome Despite SEC’s Appeal
The world of cryptocurrencies is no stranger to regulatory uncertainties, and the recent Ripple ruling has triggered both hope and apprehension within the crypto industry. On July 23, John Deaton, a prominent crypto lawyer representing over 75,000 XRP holders, shared his insights on the possible implications of an SEC appeal on the Ripple ruling.
The Ripple Ruling and the SEC’s Intentions
The U.S. Securities and Exchange Commission (SEC) has expressed its disagreement with a specific aspect of the Ripple ruling that pertains to the retail sale of XRP on crypto exchanges. The ruling concluded that the retail sale of XRP did not fall under the category of securities sales. However, the SEC intends to appeal this decision, claiming that it was “wrongly decided.”
The Timeline of the Appeal
Despite the SEC’s appeal, John Deaton pointed out that the legal process is likely to be time-consuming. If the SEC moves forward with the appeal, it is estimated to take around two years before a final decision is reached. In the interim, the Ripple ruling handed down by Judge Analisa Torres will continue to hold sway, at least within the 2nd Circuit.
The Uncertain Outcome of the Appeal
John Deaton believes that even if the SEC pursues its appeal, it does not guarantee a victory for the regulatory body. He argues that Ripple stands a chance of winning again in court if the appeal proceeds. According to Deaton’s analysis, even if the 2nd Circuit disagrees with Judge Torres’ application of the third factor of the Howey Test, it does not necessarily lead to a favorable outcome for the SEC.
The Four Factors of the Howey Test
The Howey Test is a crucial benchmark in determining whether an asset qualifies as a security under federal securities laws. It consists of four factors: (1) an investment of money, (2) in a common enterprise, (3) the expectation of profit, and (4) derived from the efforts of others. Only assets that fulfill all four criteria are classified as securities.
Judge Torres’ Ruling and the Howey Test
Judge Torres’ ruling concluded that the retail sale of XRP did not meet the third factor of the Howey Test, as retail investors did not have a reasonable expectation of profit linked to Ripple’s success. However, if the 2nd Circuit finds fault with Judge Torres’ interpretation of the third prong of the Howey Test, she might reevaluate the remaining two factors. It is conceivable that she could “rule the EXACT SAME WAY” as before, finding that the SEC did not fulfill the common enterprise factor.
Scope of the Torres Decision
It is crucial to understand that the Torres Decision is only binding within the Southern District of New York (SDNY). While a fellow District Judge within the SDNY could potentially challenge Judge Torres’ ruling, John Deaton argues that such dissent would be less likely within the 2nd Circuit, especially considering her citation of Judge Castel’s ruling from the Telegram case.
Coinbase Transcript and Alignment of Views
John Deaton refers to the Coinbase transcript as evidence that events seem to align with Judge Torres’ perspective. This transcript suggests that there is already a consensus trend within the 2nd Circuit, indicating potential alignment of views with the Torres Decision.
Ripple CEO Brad Garlinghouse’s Criticism
Ripple CEO Brad Garlinghouse has openly criticized the SEC’s handling of the case, stating that the SEC has created a “mess” around protecting retail investors while claiming jurisdiction over cryptocurrencies. He emphasizes that this approach has left consumers bearing the burden of bankruptcy while the SEC engages in press conferences.
Ripple’s Chief Legal Officer Stuart Alderoty’s Perspective
Ripple’s chief legal officer, Stuart Alderoty, echoes Garlinghouse’s sentiments, describing the SEC’s claim of jurisdiction over crypto as “simply a political power play” that ultimately harms everyone involved.
