- Attorney John Deaton argues that even if SEC successfully appeals Judge Torres’ decision, the case could result in the same outcome through different interpretations of the Howey factors.
- Deaton underscores the emphasis on the ‘common enterprise’ factor, arguing that it could be a significant challenge for the SEC in this case.
Pro-Ripple lawyer, John Deaton, has stepped forward amidst mounting criticism surrounding Judge Analisa Torres’ ruling in the SEC vs. Ripple case. Offering a fresh perspective, Deaton affirms that even if the SEC’s potential appeal succeeds, the ultimate outcome could remain unaltered due to other applications of the Howey test.
Decoding the Howey Test
At the crux of the judgment is the Howey test – a benchmark used in the United States to classify whether a transaction represents a security. Deaton underscores the Supreme Court’s assertion that this test should be the focal point when evaluating if a transaction represents an investment contract.
He outlines that Judge Torres utilized this test to examine each of the XRP transactions that the SEC claimed violated federal securities law. According to Deaton, Torres determined that Ripple’s XRP sales to institutional investors satisfied all prongs of the Howey test, while programmatic XRP sales on exchanges did not.
It’s critical to note, as Deaton elaborates, the Howey test doesn’t require judges to gauge the sophistication level of buyers. This key understanding forms the crux of his argument.
Looking at ‘Common Enterprise’
Recent discussions regarding Judge Torres’ ruling have been met with skepticism from many securities lawyers, who view her decision concerning Ripple’s XRP sales as inconsistent. They argue the decision might be reversed on appeal.
Contrarily, Deaton suggests that even if the SEC wins its appeal in the Second Circuit, leading to the case being remanded, Judge Torres could retain her initial verdict by arguing that the ‘common enterprise’ factor, or the second prong of Howey, isn’t satisfied between XRP holders and Ripple Labs.
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This ‘common enterprise’ element is a significant hurdle for the SEC, Deaton emphasizes, noting the contradictions in the SEC’s arguments concerning its definition in the lawsuit.
Adding to this, Deaton speculates that Judge Torres might put the issue of ‘consumptive intent’ before the jury, effectively maintaining the same result, albeit via different Howey factors.
In Deaton’s words, regardless of the legal intricacies and debates,
“The point is the SEC lost. Period.”
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