SEC vs. Ripple: Deaton Slams SEC Claim That XRP Represents Common Enterprise

Attorney Deaton highlights SEC’s shifting stance on the common enterprise argument in the Ripple case.

Attorney John, a prominent lawyer advocating for favorable crypto regulations, has slammed the United States Securities and Exchange Commission’s (SEC) shifting stance on its common enterprise argument in the SEC vs. Ripple case.

For context, the common enterprise is one of the prongs of the Howey test, which aids the SEC in determining whether a transaction constitutes a security.

In a Twitter thread yesterday, attorney Deaton, founder of CryptoLaw, described the SEC’s contradictory position on the common enterprise argument as the “schizophrenic defense.”

According to Deaton, the Securities and Exchange Commission first argued that Ripple was a common enterprise. However, the securities watchdog was forced to abandon this position after Ripple successfully argued that XRP holders received zero interest in the company by merely holding the coin.

Consequently, the SEC shifted its theory by arguing that the entire XRP ecosystem is a common enterprise. Deaton noted that the XRP ecosystem includes all XRP holders, all exchanges worldwide that have listed the coin, and all vendors that accept XRP as payment.

The SEC also tried to provide evidence for this argument by hiring an expert witness, who testified that all XRP holders rely on Ripple’s efforts to make gains.

Interestingly, the Judge excluded the expert’s opinion based on the contributions of XRP holders, as seen in the 3,000 affidavits submitted by Ripple and the amicus curiae (friend of the court) brief filed by Deaton on behalf of XRP holders.

Since the second argument failed to stand, Deaton asserted that the SEC developed another common enterprise theory in the Ripple case. This time, it argued that XRP, which it concedes is a software code, represents the common enterprise.

“Yep, that’s their insane argument. I call it the schizophrenic defense,” Deaton asserted.

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!

Yep, that’s their insane argument. I call it the schizophrenic defense.

— John E Deaton (@JohnEDeaton1) May 14, 2023

Attorney Morgan Says SEC Case Should Be Struck Out

Deaton’s recent remark prompted reactions from XRP community members and other prominent lawyers, including attorney Bill Morgan.

Reacting to the tweet, attorney Morgan said there is no common enterprise in the Ripple case.

He asserted that if there was any justice, the SEC’s case against Ripple should be struck out for failing to satisfy the common enterprise prong of the Howey test.

Its a moveable feast because there is no common enterprise. If there was any justice the SEC’s case should be hit right out of the park for not satisfying the common enterprise prong alone, let alone it’s problems in other aspects of the case. https://t.co/bDAzgfc1CF

— bill morgan (@Belisarius2020) May 15, 2023

Alderoty Comments on SEC’s Common Enterprise Argument

It is worth noting that the SEC’s common enterprise argument in the lawsuit was recently brought up by Ripple’s General Counsel, Stuart Alderoty, over the weekend.

Alderoty noted that the SEC unsuccessfully argued in 1946 in the Howey case that investing in a common enterprise was unnecessary, provided there was a common interest.

Ripple’s General Counsel stressed that common interest is not a common enterprise.

In 1946, in its Sup Ct “Howey” brief, the SEC unsuccessfully argued that an investment in a “common enterprise” was unnecessary provided there was a “community of interest”. The SEC was wrong then and it is still wrong now. Common Interest ≠ Common Enterprise. pic.twitter.com/RvH50b6Yjv

— Stuart Alderoty (@s_alderoty) May 13, 2023