John E. Deaton, founder of Crypto-Law and a lawyer representing 68,700 XRP holders in the SEC vs. Ripple matter, has poked holes into the regulator’s claims against Ripple, terming them as reckless and dangerous.
In a letter sent to the Members of the House Financial Services Committee and those of the Securities Exchange Commission (SEC) on Tuesday, the lawyer called out the SEC for allegedly taking the court in circles despite proof that XRP was not a security. XRP was simply a “virtual currency,” just as declared by the Department of Justice Civil Division and the Financial Crimes Enforcement Network (FinCEN) in 2015 when XRP became the first regulated cryptocurrency in the United States.
The SEC brought the case against Ripple and its officials in December 2020, with the regulator alleging that senior executives Brad Garlinghouse and Chris Larsen had sold XRP tokens as unregistered securities. Ripple has denied the allegations calling on the court to consider both internal and public statements by senior SEC officials which contradict the regulator’s arguments.
For instance, Ripple’s lawyers accuse the SEC of double-speaking following a 2018 speech by former SEC Chairman Jay Clayton stating that “The token – or coin or whatever the digital information packet is called – all by itself is not a security, just as the orange groves in Howey were not.” Before the case against Ripple was filed, the SEC had always considered digital assets such as Bitcoin, Ethereum, and XRP to be “simply code.”
To Deaton, the main reason SEC Chairman Gary Gensler allowed the case to carry on is because “if this premise is accepted by the Court, it would empower the SEC to regulate a vast number of parties not included in this case, including digital asset exchanges, vendors, and retail holders.”
Accordingly, the lawyer who claims to have been granted amici curiae status for the benefit of XRP holders went on to ask the two committees to consider the effect of their actions on XRP proponents.
“SEC’s overreach threatens the interests of not only XRP holders, but the exchanges and businesses utilizing XRP, and it implicates all other crypto assets,” Deaton argued. “The ability for retail holders and small businesses to transact in XRP (and other cryptos) could be greatly impaired.”
That said, the SEC suffered a severe blow on Tuesday after U.S. Magistrate Judge Sarah Netburn failed to buy arguments that Hinman’s 2018 speech should be treated as a “personal matter” and be protected under attorney-client privilege since they were “internal documents.” As per the ruling, the judge ordered that “the documents must be produced,” a move considered a huge win for Ripple.