- A banking law expert argues against the use of the Howey Test to determine what is or isn’t an investment contract, which could lead the SEC to lose its “war against crypto.”
- The SEC’s authority could be affected if the Howey Test is challenged, and its implications could also be used against the SEC in other court cases.
Challenging the Howey Test Could Affect the SEC’s Authority Over Crypto
The SEC’s use of the Howey Test to determine what is or isn’t an investment contract has come under scrutiny by a banking law expert, Todd Phillips, who argues that the test may not be the best way to decide what constitutes an investment contract.
Phillips suggests that the test could be replaced with a more robust one that considers post-sale legal obligations, the right to share profit, and the need for a contract. If this were the case, crypto assets would likely be commodities, giving the Commodity Futures Trading Commission jurisdiction.
This could have far-reaching implications for the SEC’s authority over crypto and other assets, including wider implications for court cases against entities like Coinbase.
Ripple Defense Uses Argument in Court
Ripple’s defense team has already made the argument that the Howey Test may not be the best way to decide what constitutes an investment contract. Legal expert and amicus curiae for Ripple, John E. Deaton, cites Phillips’ tweet and confirms that the Ripple defense team has made this argument, with Judge Torres’ decision expected soon.
Deaton’s firm, CryptoLaw, also argues that crypto can’t be an investment contract for those who acquire a token on the secondary market for consumptive use and with no knowledge of, interest in or rights from whoever previously sold it on chain.
Expert Admits Bitcoin and Ethereum Affect XRP’s Value In a surprising admission, the SEC’s own expert has confirmed that the price movements of Bitcoin and Ethereum could explain up to 90% of fluctuations in XRP’s value since mid-2018.
Lawyer Bill Morgan reveals this information, which could affect the SEC’s case against Ripple. As things stand, XRP’s price has seen a 0.36% increase in the last 24 hours and a 2.79% decline over the week, holding onto the gains of 36.05% accrued over the past month.
The Ripple vs. SEC case remains one of the most closely watched in the crypto industry. While the outcome is uncertain, the challenges to the Howey Test and the SEC’s authority could have significant implications for the wider crypto market.