On 21 August 2023, John Deaton, a prominent American attorney who has been closely observing the SEC v. Ripple lawsuit since its inception in December 2020, expressed his concerns regarding the SEC’s approach to cryptocurrency litigation.
In a post on X (previously Twitter), Deaton delved into the SEC’s inconsistent arguments and its handling of various crypto cases.
SEC’s Approach in the Ripple Case
Deaton highlighted the SEC’s shifting stance throughout the Ripple case. He pointed out several instances where the SEC appeared to change its arguments:
- Hinman’s Speech: Initially, the SEC lawyers claimed that the speech by Hinman was purely his personal opinion and not an official guidance to the market. However, when asked to produce related emails, the SEC changed its stance, stating that Hinman was speaking in his official capacity as the Director of Corporation Finance, thereby representing the Division’s opinion and guidance.
- Definition of the Common Enterprise: The SEC’s definition of the “common enterprise” in the Ripple case has been inconsistent. Initially, Ripple was identified as the common enterprise. This stance shifted to include the entire XRP ecosystem, encompassing all XRP holders, exchanges, and businesses using XRP. Later, the SEC argued that the XRP token itself “represents” the common enterprise.
- XRP as a Security: The SEC’s position on whether XRP itself is a security has been contradictory. Initially, they argued that XRP, being just computer code, wasn’t a security. However, later arguments suggested that XRP “embodied” Ripple’s promises and represented both the investment contract and the common enterprise. Deaton emphasized the circular logic in the SEC’s arguments, suggesting that the SEC indirectly implied XRP itself is a security.
Recent Case: SEC vs. Gemini
Deaton drew parallels between the Ripple case and the SEC’s recent accusations against Gemini’s service, Gemini Earn. The SEC alleged that Gemini Earn violated securities regulations by offering unregistered securities. In response, Gemini highlighted the SEC’s inability to clearly define the security in question, which they argued showcased the weakness in the SEC’s position and violated the principle of fair notice:
Deaton expressed strong criticism of the SEC’s approach, particularly its inconsistency in arguments. He emphasized that the SEC’s behavior in the Ripple case was so concerning that a federal judge labeled the SEC’s actions as “hypocrisy” and accused its lawyers of lacking fidelity to the law. The judge further stated that the SEC lawyers would make any argument, regardless of its consistency with previous positions, to further their litigation goals.