While the cryptocurrency community is still waiting for the conclusion of the court standoff between the United States Securities and Exchange Commission (SEC) and Ripple, a legal expert and amicus curiae for the blockchain company has slammed the watchdog’s ‘schizophrenic theory,’ ‘insane argument,’ and ‘schizophrenic defense.’
Indeed, John E. Deaton was commenting on an earlier tweet by Stuart Alderoty, in which Ripple’s chief legal officer criticized the SEC’s inconsistent stance on what constitutes a ‘common enterprise,’ as evident in the ‘Revak v. SEC Realty Corp.’ case from 1994, according to Deaton’s Twitter thread on May 14.
Specifically, in this case, the court said that “without a ‘common enterprise,’ it matters not whether ‘the fortunes of investors are tied to the efforts of the promoter’ and that the Howey test is not ‘so easily satisfied,’” as Alderoty observed in his tweet, stating that this case “exposes yet another SEC sleight of hand.”
SEC’s fickle argument
Furthermore, Deaton continued to argue that “the SEC shifted its theory and said the entire XRP ecosystem constituted the common enterprise, including all XRP holders in the world, all the exchanges that list XRP, and all the vendors or companies that accept XRP as a form of payment.”
Moreover, Deaton said that, in order to force “such a ridiculously overboard claim,” the SEC intended to use a “hired gun” in the form of an expert witness testifying that “all XRP holders must rely on Ripple,” but that “XRP holders stopped that nonsense, and the judge excluded “this Expert’s bulls**t opinion.”
Finally, the attorney called out the SEC on its “insane argument” and the ever-changing, “schizophrenic defense,” stressing:
“So what did the SEC argue next? It, once again, shifted its common enterprise theory and abandoned the entire XRP ecosystem theory to a new theory: XRP itself represents the common enterprise!”
Lawyer Bill Morgan agreed with Deaton, voicing his opinion that “if there was any justice,” the court should hit the SEC “right out of the park for not satisfying the common enterprise prong alone, let alone its problems in other aspects of the case.”
Other problematic aspects
Morgan also deconstructed the SEC’s argument that the fungibility of XRP was evidence of common enterprise as all units of XRP rise and fall together, which is one of the parts of a common enterprise. As he explained, the same argument could stand about an ounce of gold (which Ripple’s attorneys highlighted as well), but that this was “no problem for the SEC.”
Earlier, Alderoty cited the regulator’s unsuccessful argument in the Supreme Court’s ‘Howey’ case of 1946, in which the SEC asserted that investment in a common enterprise was unnecessary if there was a ‘community of interest,’ and which the court rejected, which he said proved the SEC was wrong then and is wrong now.
Recently, Deaton re-tweeted this argument, pointing out that the SEC was so arrogant that it openly disregarded the law and even boasted about it, citing its statement that it “does not require vertical or horizontal commonality per se, nor does it view a ‘common enterprise’ as a distinct element of the term ‘investment contract.’”
Meanwhile, XRP was at press time changing hands at the price of $0.43, recording a slight drop of 0.1% on the day, as well as 3.12% across the previous week, adding up to the monthly loss of 18.06%, according to the recent data retrieved by Finbold on May 15.