Deaton Reiterates Judge Sarah Netburn’s Criticism of SEC in Ripple Case

The attorney reiterates his belief that the SEC is acting in allegiance to its goals of expanding its control over the emerging market and not in loyalty to the law.

Attorney John E. Deaton recently reiterated Judge Sarah Netburn’s criticism of the United States Securities and Exchange Commission in its case against Ripple.

The lawyer representing over 75,000 XRP holders in the case as a friend of the court did this in a tweet today, quoting statements from the magistrate in July last year. It came in response to a recent Bloomberg opinion piece dubbed “The SEC Comes for Crypto Custody.”

cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his Speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law.”

-Judge Netburn

— John E Deaton (@JohnEDeaton1) February 20, 2023

Prominent Bloomberg columnist Matt Levine in the article, suggests that the SEC has managed to flip the script on the crypto industry. Levine asserts that regulators in the traditional finance industry create general public rules to cover all cases only for creative, higher-paid industry lawyers to find and take advantage of loopholes.

However, Levine highlights that the reverse currently appears to be the case with the crypto industry. The columnist points out that the SEC is exploiting legal provisions to gradually expand its regulatory powers in the emerging market, with industry participants consistently a step behind.

“Just an unusual situation!” Levine writes.

Levine’s piece comes as the SEC has notified centralized staking service providers with its enforcement action against Kraken.

Recall that Judge Netburn, last July, asserted that the SEC was not acting in faithful allegiance to the law but in pursuit of its goals, citing its shifting stance on the controversial Hinman documents.

Notably, the agency initially argued that William Hinman’s controversial speech in 2018, which declared Bitcoin and Ethereum non-securities represented his personal views and not the opinion of the market regulator. However, when the judge requested that the SEC hand over emails and other documents related to the drafting of the speech, the SEC alleged that attorney-client privileges protected these documents as Hinman consulted SEC lawyers in the drafting of the speech.

For context, Hinman, at the time, served as director of the SEC’s Division of Corporation Finance. Notably, the SEC’s complaint against Ripple took many by surprise, considering Hinman, just two years prior, in what is regarded as the only guidance from the SEC to the emerging markets, had asserted that Bitcoin, Ethereum, and other sufficiently decentralized networks do not represent securities.

Consequently, several crypto industry participants and market observers are curious as to the contents of the hotly contested documents. As highlighted in a recent piece by Dr. Roslyn Layton, a policy researcher and Forbes contributor who recently filed a motion for the court to unseal the document, it could clarify if Ethereum interests influenced Hinman’s speech or if regulators are confused, which could justify confusion amongst industry participants.

Notably, the market regulator wants the documents to remain sealed, arguing that opening them to public scrutiny could affect the openness of future policy deliberation processes.

As the SEC’s chair, Gary Gensler, continues to assert that traditional securities laws apply to crypto and new rules are unnecessary, the agency has continued to stretch existing laws to launch several enforcement actions against industry participants. Consequently, the market in the U.S. remains shrouded in uncertainty with no clear path to compliance despite statements to the contrary by Gensler.