Legal
Pro-XRP attorney Deaton comments on a bill that aims to clarify whether an asset is a security under the purview of the SEC.
CryptoLaw founder attorney John Deaton has reacted to a new bipartisan Securities Clarity Act introduced in the House by Reps. Darren Soto and Tom Emmer.
The Securities Clarity Act, introduced earlier this week, would clarify that a digital asset offered as an investment contract at its early stage does not necessarily become a security.
If the bill is passed, the Securities Clarity Act will make it difficult for the U.S. SEC to claim that most crypto assets fall under its regulatory purview.
Attorney Deaton’s Reaction
Reacting to the development, attorney Deaton expressed sadness that the bill is needed due to the SEC’s unending efforts to expand the Howey test into secondary markets.
It’s sad that we need this bill due to out of control regulators attempting to expand the Howey test into secondary markets despite not being able to cite a single case where that’s been allowed. https://t.co/LLhAGLhVS4
— John E Deaton (@JohnEDeaton1) June 1, 2023
He noted that the “out of control regulators” have been trying to expand the Howey test into secondary markets despite being unable to cite a case where the underlying asset of an investment contract is considered a security.
This perceived overreach has led to numerous enforcement actions against crypto-focused firms, including LBRY and Kraken. Industry leaders continue to lament the extent of regulatory unclarity in the industry.
Despite this marked extension of the Howey test, SEC Chair Gary Gensler could not clarify if XRP or ETH is security during the latest Congressional oversight hearing. The recently-introduced securities clarity bill came up shortly after Congress grilled Gensler in the oversight hearing.
SEC’s Flawed Application of the Howey Test
It bears mentioning that the Howey test is a legal test that helps determine whether a transaction constitutes a security. The test has been one of the most debated topics since the SEC vs. Ripple lawsuit began.
The US SEC argues that Ripple’s XRP sales satisfy the prongs of the Howey test. Interestingly, the regulatory watchdog’s argument has been countered by Ripple’s attorneys and other top lawyers like Deaton, who have closely followed the lawsuit.
Per Deaton, the SEC has stretched the Howey test to the point that it has become indefinable in time or space. Deaton argued that the SEC performed a shorthand analysis in its Howey test application for XRP. He asserted that the test must apply to each transaction.
Aside from expanding the Howey test, the SEC also failed to distinguish between investors who purchased XRP from Ripple and those who acquired the asset from secondary markets.
XRP enthusiasts believe the move is part of the commission’s plot to implicate secondary market sales of the coin. Interestingly, the plot was pushed back by attorney Deaton and more than 75K XRP investors via an amicus curiae brief.
Attorney Deaton believes the amicus curiae brief filed by XRP holders will prompt Judge Analisa Torres to comment on XRP secondary market sales in her upcoming summary judgment decision.
