John Deaton, a highly-respected attorney, recently outlined a possible roadmap to a resounding victory for Ripple in the ongoing lawsuit started by the U.S. SEC in December 2020 over the alleged ongoing illegal sales of XRP tokens.
Deaton, a renowned figure in the world of digital asset law, recently weighed in on the U.S. SEC’s lawsuit against FinTech firm Ripple. As the Managing Partner of Deaton Law Firm and founder of CryptoLaw, Deaton is known for his deep understanding of U.S. legal and regulatory developments concerning digital asset holders.
In a series of Twitter posts on May 18, 2023, Deaton acknowledged the inherent difficulties in interpreting the specifics of the lawsuit due to the yet unreleased 56.1 statements and counter statements from both parties. As Deaton explained, these documents are integral as they represent each party’s cited evidence and facts supporting their stance for summary judgement.
Deaton pointed to Ripple’s ‘Blue Sky’ argument, which suggests that an underlying contract must exist before applying the ‘Howey’ test, as a pivotal point in the case. According to Deaton, Ripple’s recent admission that some XRP sales involved written contracts has raised questions, but Ripple maintains these contracts cannot be deemed investment contracts as they don’t impose post-sale obligations on Ripple nor grant equity or profits to the XRP holders.
However, Deaton expressed skepticism about Ripple’s argument, stating his belief that Judge Torres may disagree with Ripple’s focus on contracts. Despite his skepticism, Deaton acknowledged the importance of Ripple’s Fair Notice Defense, aligning with Attorney Jeremy Hogan’s perspective that it should be viewed as an insurance policy if Ripple is found to have violated Section 5 of the Securities Act of 1933.
Deaton also shed light on recent speculation about a possible split decision in the case. This outcome could result in Ripple facing the consequences for early XRP sales, while its On-Demand Liquidity (ODL) and secondary market sales could be deemed non-securities, ensuring XRP itself is not labeled as a security.
If Ripple also succeeds in demonstrating they lacked fair notice regarding the illegality of their early XRP sales, Deaton suggests that this could represent a substantial victory for the firm. This outcome could not only turn the tide for Ripple but also set a new precedent in the complex landscape of cryptocurrency regulation.