Deaton Explains Why The SEC Will Have Trouble Winning Against Ripple Executives

Deaton and Hogan believe the SEC has a tough nut to crack in its case against Larsen and Garlinghouse.

In a lengthy Twitter thread yesterday, Attorney John E Deaton explained why the US Securities and Exchange Commission is highly unlikely to win in its case against Ripple Executives Brad Garlinghouse and Chris Larsen. 

The thread from the CryptoLaw founder who represents XRP holders as a friend of the court in the SEC case against Ripple came in response to a tweet by fellow lawyer Sasha Hodder. Notably, Hodder revealed that if the Ripple executives lose against the SEC, Larsen and Garlinghouse will owe the SEC $450 million and $150 million, respectively. 

Deaton, in his thread, explained that for both executives to lose, the SEC has to prove that they were “reckless” not to know that XRP was a security. According to the lawyer, it had to be evident to the ordinary person that XRP was a security. However, outlining the facts, Deaton implies that it is a near-impossible task.

WERE RIPPLE EXECUTIVES RECKLESS – ?

In order for @chrislarsensf & @bgarlinghouse to lose the individual claims made against them, the judge has to conclude, as a matter of law, the two executives were reckless in not knowing #XRP was a security. Not negligent – but reckless! https://t.co/76yQuhiV3x

— John E Deaton (@JohnEDeaton1) December 7, 2022

First, Deaton points out how XRP was classified in 2014 by the US Government Accountability Office and in 2015 by the Financial Crimes Enforcement Network as a virtual currency. Additionally, he points out that Hinman’s speech in 2018, which the SEC recently said should serve as guidance, notes that Bitcoin, Ethereum, and other decentralized networks do not constitute securities.

Furthermore, he points out that the SEC’s 2019 digital asset framework says a crypto asset that holders can immediately use for payments is unlikely to satisfy Howey’s test and, as such, can not be classified as a security. Meanwhile, Deaton cites that seven years before the case, Larsen had presented to regulators, SEC included, showing how Ripple planned to revolutionize payments using XRP.

Considering all of these and several other facts listed, Deaton believes it is improbable that the SEC will be able to prove recklessness on the part of Larsen and Garlinghouse.

“I’ve written (meaning my law firm) and/or argued hundreds of summary judgment motions during the last 20 years, and I can confidently say Garlinghouse and Larsen have a better chance at summary judgment on Recklessness than the SEC does,” Deaton wrote.

Notably, Jeremy Hogan, another pro-Ripple attorney, expressed similar sentiments. According to Hogan, the SEC is more likely to win against Ripple than against Garlinghouse and Larsen. 

The SEC has a completely different (and harder) legal standard to prove as to Larsen and Garlinghouse. Ripple could lose 100% and the individual Defendants could still very well win.

— Jeremy Hogan (@attorneyjeremy1) December 7, 2022

It is worth noting that the SEC named Garlinghouse and Larsen in its complaint against Ripple in December 2020 for allegedly aiding and abetting the offer and the sale of an unregistered security. Notably, the lawsuit has now spanned over two years. 

Despite the abundance of evidence highlighted by Deaton yesterday, in March, Judge Analisa Torres denied a motion from the Ripple executives to dismiss the case against them, as reported by The Crypto Basic.