Crypto lawyer says the biggest danger of ripples could lead to this outcome

by Arthur · February 15, 2023

Founder of CryptoLaw John Deaton cites the biggest danger for Ripple in the SEC lawsuit. Deaton responded to a tweet from crypto enthusiast Mr. Huber, @Leerzeit, on the Howey test.

The Howey test, established by a landmark Supreme Court decision in 1946 and cited in the SEC complaint against Ripple, establishes the requirements for determining whether a financial agreement qualifies as an “investment contract” and is therefore subject to federal securities law.

I have said that this is the biggest danger for Ripple. Indeed, I predicted that would be the focus of the SEC’s motion for summary judgment. The SEC argued for it, but not as much as I anticipated. The SEC didn’t go transaction by transaction on sales, so the “offer” is the biggest danger.

— John E Deaton (@JohnEDeaton1) 15 February 2023

Mr. Huber quoted a line regarding the Howey test: “The fact that some of the investors chose to use services other than those of Howey-in-the-Hills to tend the groves was irrelevant because Section 5 prohibits the offering of unregistered securities as well as the sale by them.”

The violation in paragraph five thus involves the offer of unregistered securities as well as their sale. According to Deaton, the offering of unregistered securities could be the biggest danger for Ripple in the SEC lawsuit.

“I actually predicted that would be the focus of the SEC’s motion for summary judgment. The SEC argued it, but not as much as I predicted. The SEC didn’t go transaction-by-transaction on sales, so the ‘offer’ is the biggest danger,” Deaton said .

Higher chances of the case going to a jury: Deaton

In 2018, ODL, which uses XRP for instant settlement of payments, was launched. Since then, Ripple has only sold XRP in connection with ODL transactions.

Deaton responded to crypto enthusiast and lawyer Bill Morgan, who asked about the claims of injunction or deactivation “if all sales (therefore all offers) are now only for and related to the growth and adoption of ODL and not as an investment with an expectation of profit.”

Morgan asked the question on the basis that the SEC can only rely on offers made before June 2019 and cannot prove that specific sales were investment contracts.

He says that if this assumption is true, Deaton replied, “it will not be an injunction, no disgorgement, but a fine. But as you know, I think the chances of a jury trial are higher than most people think.”

In this light, Deaton believes the only win for the SEC is if Ripple offered XRP as an unregistered security between 2013 and 2017.