The long and winding saga of Ripple Labs vs the SEC gained another chapter this week, as John Deaton – amici for over 70,000 XRP holders – retaliated to an Op-Ed from Gary Gensler published in the Wall Street Journal with his own rendition of events, and in particular, the SECs heavy-handed tactics towards crypto assets
For the past year and a half there has been an ongoing battle between the SEC and Ripple Labs. The disparities between the two sides mainly exists around the sales of XRP, the native currency of the XRP Ledger, which the SEC claims to have violated legal precedent established by a Supreme Court ruling from the 1940’s, when it offered XRP for public sale without first registering the digital asset as a security. Howey & Co vs The SEC gave birth to the Howey Test, and how assets are now measured as securities. Or at least, how the SEC want to measure the orange groves of today.
The two Op-Eds display the two sides of the fence in this case, of which are poles apart to say the least.
SEC Chair Gary Gensler Op-Ed In WSJ
On 19 August 2022, Chairman of the Securities and Exchange Commission (SEC), Gary Gensler, published a Wall Street Journal op-ed editorial. In the opinion article the SEC chairman references motor vehicles as a vantage point from which investment vehicles can also be understood. Chairman Gensler goes on to express how consumers and investors deserve to be protected in all aspects of commercial and financial business. The SEC chair highlights his belief that all cryptocurrencies should be reviewed carefully to ensure they are in fact not operating as unregistered securities.
The opinion goes on to affirm the position of the SEC as being rooted in belief that it is upholding the law and protecting consumers and investors by pursuing cryptocurrencies they believe to be operating as unregistered securities. Chairman Gensler supports his position by referencing recent crashes and bankruptcies seen throughout the cryptocurrency industry, while revisiting the comparison of all aspects of automobiles from seatbelts to other safety elements needing to be regulated in the motor vehicle industry.
All in all, the opinion editorial seemed to be heavily aimed at crafting an image of the SEC as a protector of consumers and investors rights. The SEC chair did so, by stating that cryptocurrencies should be required to divulge certain information regardless of the implications of the token or coin within the blockchain-based environment for which they are made, in an effort to ensure investors are fully informed prior to purchasing.
XRP Holders’ Attorney John Deaton Responds In Fox Business Op-Ed
On 21 August, two days after the publishing of SEC Chairman Gary Gensler’s WSJ opinion, John Deaton, who represents around 72,000 XRP holders in an amici curiae capacity in the high profile case, responded with his own op-ed published on Fox Business. In the article Attorney Deaton begins by referencing historical aspects of the case, going back to the Securities Act of 1933 in which investment contracts were listed as a type of security to be regulated by the SEC. Mr. Deaton then goes into elements of the historic case of the SEC vs. W.J. Howey Company of Florida, and the standard it produced. It is known today as the Howey test. An instrument was said to be an investment contract if it met four parameters. 1, there has to exist an investment of money, 2, into a common enterprise, 3, with a reasonable expectation of profit, 4, derived predominantly from the effort of others. Deaton believes that Chairman Gensler’s use of the Howey Test, would essentially make secondary sales of Howey’s oranges in greengrocers and shops – as securities offerings – a viewpoint he described as “absurd”.
Attorney Deaton then went into the overreach he believes to be taking place by the SEC and Chairman Gary Gensler. Mr. Deaton also speculates about the SEC desiring to gain power and control beyond its given lawful limit, and that former SEC Chairman Jay Clayton may have thought the Ripple case to have been an ‘easy win for the SEC’ and so perhaps didn’t want acting Chairman Gary Gensler taking the credit. The XRP holders’ attorney then goes on to give further details and points to suggest the SEC overreach to be potentially additionally motivated by personal political notoriety and advancement.
The editorial then also references connections the SEC chairman has with President Biden and the potential for more opportunity in the Presidential cabinet in the future. Attorney Deaton makes it clear that he believes the SEC to be attempting to regulate an industry and type of instrument which it is not prepared to, and should instead leave cryptocurrency regulatory decisions to what he believes to be the more qualified Commodity Futures Trading Commission (CFTC).
How Will The Case Move Forward?
The op-ed contributions by both Chairman Gensler and Attorney Deaton are both yet another set of pages in the many volumes of this ongoing debate and legal battle between Ripple Labs and the SEC. While the case proceeds forward, seemingly at a snails pace, Ripple continues to grow significant business in countries outside of the US. Once a final ruling is rendered, it is anticipated to be one of the biggest financial hearings decided to date, having potential implications across the cryptocurrency and financial market landscapes.
Until that time Attorney Deaton doesn’t seem to be intimidated by the large SEC organizational infrastructure, as he has maintained with fervor throughout his tenure as the legal representative for the tens of thousands of XRP Holders whom he represents. The question which the courts will have to decide it seems is, is the SEC within its rights to distinguish that all sales of XRP constitute unregistered securities offerings? Or will this turn out to be in fact, as Attorney Deaton puts it, “a gross SEC overreach”? The case, and its never-ending source of bombshells – continues.