CryptoLaw founder and XRP holders' attorney John Deaton believes the United States Securities and Exchange Commission (SEC) is exploiting legal uncertainty about crypto to completely redefine what constitutes an investment contract and a common enterprise in the U.S.
In a Bloomberg piece, Deaton examines how the Ripple and LBRY lawsuits may affect the agency's enforcement of laws relating to digital assets, how they will stretch the limits of U.S. v. Howey, and how they will redefine investment contracts and common enterprise.
According to Deaton, the U.S. Supreme Court defined exactly what constituted security in its famous SEC v. Howey judgment from 1946. Those judges had no idea that nearly a century later, complex digital commerce would take place over encrypted lines of computer code.
Deaton continues, saying that although Chairman Gary Gensler of the Securities and Exchange Commission has his ideas about how cryptocurrencies should be regulated today, they show no similarity to the Howey decision and are straying into dangerous legal territory in court.
Judge Torres taking her time in Ripple case
Deaton believes that district judge Analisa Torres is taking her time ruling in the Ripple case because she must understand the stakes, especially if the case goes to appeal.
This is because the issues at stake concern the fundamentals of modern securities law, including the types of assets that can and cannot be covered by it.
The SEC contends that all sales of XRP have always been and will always be securities because "the very nature" of the digital asset is to be a security and nothing else. This goes beyond what the 1933 Securities Act, more than 250 federal appellate court rulings and the Supreme Court ever envisioned concerning securities law.
Deaton claims that he has spoken with many XRP holders who do not feel that the lines of computer code they acquired can be considered an investment contract or a joint venture with a company they have never heard of. He claims that nothing in the law, either before or after Howey, supports the SEC's viewpoint.