Deaton Challenges SEC Common Enterprise Theory After Lawsuit Response


Key Points

  • John Deaton critiques SEC’s view on common enterprise factors in the XRP case.
  • SEC argues Judge Torres made an error in her XRP ruling.
  • Deaton believes the common enterprise factor is even more challenging for the SEC to establish.

In response to the recent US regulator filing in the Do Kwon lawsuit, John Deaton, a pro-XRP lawyer, critiqued the agency’s stance on the common enterprise factor in the XRP case, hinting at a potential appeal.

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The Securities and Exchange Commission (SEC) argued that Judge Analisa Torres made an error in her XRP ruling and expressed the likelihood of appealing the decision. According to Deaton, the common enterprise factor is even more challenging for the SEC to establish than the third factor of the Howey test, which has been a crucial element in determining whether an investment qualifies as a security.

Even if the SEC successfully appealed Judge Torres’ ruling, Deaton believes that it would only lead to a remand, where Judge Torres would likely conclude that the SEC failed to prove the existence of a common enterprise between Ripple and XRP holders in the secondary market.

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Deaton points out that the SEC’s common enterprise theory underwent multiple shifts during the case, ultimately arguing XRP itself represented the common enterprise. He argues that this circular and conclusory theory is one of the reasons why the SEC lost the case.

The lawyer also shared the court ruling’s footnote, which stated that a common enterprise existed between Ripple and the Institutional Buyer. Yet, it did not extend to encompass “other XRP holders,” Ripple’s executives Brad Garlinghouse and Chris Larsen, the “XRP ecosystem,” or any other entities.

Notably, the U.S. court ruled that XRP is not security, causing XRP to see astronomical gains in matters of hours. However, the court sided with the SEC that Ripple’s XRP sale to institutional investors counts as security. CRYPTOCASTER® - DECENTRALIZED FREEDOM!

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