John E. Deaton, a vocal advocate for the cryptocurrency XRP, has sharply criticized the U.S. Securities and Exchange Commission (SEC) for what he calls their "embodiment theory."
This theory first surfaced in the SEC's response to Deaton's motion to intervene on behalf of XRP holders in the ongoing legal battle with Ripple.
In his social media post, Deaton stressed a significant flaw in the SEC's argument, pointing out the agency's failure to cite any legal precedent or established case law to support this novel theory.
Understanding the SEC's embodiment theory
The embodiment theory posited by the SEC has become a contentious point in the cryptocurrency community.
As explained by Scott Johnsson, another observer of the SEC's legal strategies, during the Binance oral arguments, the SEC stated, "The token itself represents the investment contract... the token represents the embodiment of an investment contract."
This assertion suggests that the SEC views the cryptocurrency token as a direct representation of an investment contract, merging the concept of the token with the legal framework of an investment.
However, this stance seems contradictory to previous statements made by the SEC, leading to confusion and debate within the legal and crypto communities.
Deaton's critique
Deaton has been vocal in his criticism of the SEC's approach, particularly regarding the lack of historical legal support for the embodiment theory.
In a social media post dated July 19, Deaton argued that XRP does not represent an interest in Ripple in the same way a stock certificate might represent an interest in a company.
This lack of precedent, according to Deaton, indicates that the SEC's theory is not grounded in established law.
He further stressed the importance of applying existing laws to the facts, as exemplified by Judge Torres' strict application of the Howey test in the Ripple case.
Deaton's advice to those discontent with the current legal framework is to seek legislative change through Congress
Gamza Khanzadaev
