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XRP Lawsuit: Crypto Lawyer Says Biggest Danger to Ripple Might Lead to This Outcome

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Wed, 15/02/2023 - 11:08
XRP Lawsuit: Crypto Lawyer Says Biggest Danger to Ripple Might Lead to This Outcome
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CryptoLaw founder John Deaton names the biggest danger to Ripple in the SEC lawsuit. Deaton responded to a tweet by crypto enthusiast Mr. Huber, @Leerzeit, on the Howey test.

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The Howey Test, which was established by a landmark Supreme Court ruling in 1946 and was 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.

Mr. Huber quoted a line regarding the Howey test: "The fact that some of investors chose to use services other than those of Howey-in-the-Hills to tend to the groves was irrelevant because section 5 forbids the offer of unregistered securities as well as the sale of them."

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Thus, the section five violation involves the offering of unregistered securities as well as the sale of them. According to Deaton, the offering of unregistered securities might be the biggest danger for Ripple in the SEC lawsuit.

"I actually predicted it 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 case going to 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 disgorgement "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 posed the question on the basis that the SEC may only rely on offers made before June 2019 and cannot prove that specific sales were investment contracts.

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He says that, if this premise is true, Deaton answered, "there won't 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 believe."

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

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