As the lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple drags on, lawyer John Deaton has found himself again at the centre of a heated debate surrounding the classification of XRP as a security.
It all started on Friday, June 23, when lawyer and crypto enthusiast Bill Hogan posed the question, “Does the SEC have evidence from even a single actual holder of XRP that he or she bought XRP expecting a profit from Ripple’s efforts?”
Responding, Jesse Haynes, founder of equity crowdfunding firm SeedStarter, shared his perspective, stating that he had purchased XRP several years ago with the belief that Ripple would develop its utility and acknowledged that many individuals shared similar expectations. He further revealed that he had received numerous messages from individuals who admitted to purchasing XRP without conducting prior research.
Pro-Ripple lawyer John Deaton concurred with Haynes’ assertion stating that through his communication with over 10,000 XRP Holders, he had found that most first-time XRP buyers (over 52%) were unaware of Ripple as a company.
According to him, while they may have recognized the name, Ripple, they were unaware that it was a company selling software to banks at the time of their initial acquisition. “A lot of people get surprised by this fact, and some claim they don’t believe it, but I believe it,” said Deaton.
Further, Deaton acknowledged their presence when asked about investors who were aware of Ripple’s involvement, including XRPL developers who bought XRP without knowledge of the company. He, however, laid out the grounds for establishing whether XRP was a security at the time.
“If Ripple had direct contact with you and sold you XRP, there is a valid argument that the Howey test was met because in that scenario, 1) you gave money to Ripple for XRP; 2) you entered into a common enterprise with Ripple (through vertical commonality); and 3) you were sitting back expecting profits on your XRP derived by the talents and efforts of its CTO, management team, board of directors, and Ripple, the company,” added Deaton.
Deaton further emphasized that purchasing XRP indirectly from Ripple or acquiring it for non-investment purposes would present different circumstances. He clarified that even if Ripple sold an investment contract utilizing XRP as the underlying asset, it would not categorize XRP itself as a security, nor would it affect the security status of personal XRP holdings.
Deaton, representing tens of thousands of XRP holders in the suit as amicus curiae, has vehemently opposed SEC’s assertion that XRP is a security and its perceived regulatory overreach on the crypto sector. Recently, the “Crypto Law Us” founder slammed the regulator suggesting that the recent lawsuits against Binance and Coinbase were to allow the Wall Streeters to catch up.
