Deaton Says Ripple’s XRP Ownership Was Not an Issue in SEC Lawsuit

Pro-XRP lawyer Deaton identifies proposal that could have prevented SEC vs. Ripple lawsuit, highlighting Clayton and Hinman’s contribution to lack of clarity.

A recent Twitter thread by John Deaton, a pro-XRP lawyer and founder of CryptoLaw, shed light on the potential ramifications of a Safe Harbor proposal by the U.S. SEC. Deaton suggested this proposal could have brought clarity to the crypto industry and potentially prevented the legal battle between Ripple and the SEC.

Like the one presented by SEC Commissioner Hester Peirce, a Safe Harbor proposal would give token issuers a grace period to develop their network free of federal securities laws under certain conditions. 

Recently on @scottmelker @cryptomanran and @MarioNawfal’s Crypto Town Hall Spaces, @WarrenDavidson made a very accurate statement. Although no one is as bad as @GaryGensler, the Congressman stated some blame must be placed on Clayton and Hinman’s tenure at the SEC.

READ THIS: pic.twitter.com/TNon5nmxPb

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

Drawing attention to the SEC’s primary concern, Deaton proposed that if the regulatory body had focused on Ripple’s percentage of ownership in the outstanding XRP token, it could have set a specific timeframe for Ripple to reduce its holdings and meet the predetermined threshold.

a16z Made a Safe Harbor Proposal 

The observations made by Deaton stemmed from his conviction that the absence of explicit guidelines and a safe harbor framework has hindered the United States from keeping pace with the rapidly evolving crypto landscape.

Highlighting the importance of a Safe Harbor Proposal, Deaton pointed to a meeting on March 28, 2018, between representatives of venture capital firm Andreessen Horowitz (a16z) and former SEC Director Bill Hinman. 

On March 28, 2018 representatives of @a16z met with Hinman. Days prior, they gave Hinman a lengthy memo ? along with a Safe Harbor Proposal. Now, #ETH was the only token listed in the Safe Harbor, but it could’ve been applied to other tokens as well.

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

He underlined that, before the meeting, a16z had submitted an extensive memorandum proposing the Safe Harbor, originally tailored for Ethereum (ETH) but with potential applicability to other tokens.

According to Deaton, it is possible that this particular Safe Harbor Proposal influenced the subsequent introduction of a similar proposal by Commissioner Peirce in 2020. She presented a second proposal with three modifications in April 2021. 

Potential Benefits of a Safe Harbor 

Deaton emphasized the potential benefits that a safe harbor approach could have brought to Ripple and LBRY, among other crypto-focused companies. 

These firms could have received a notice outlining specific criteria necessary to demonstrate decentralization, giving them a three-to-five-year window to meet these requirements and establish their tokens as commodities. Such regulatory clarity would have paved the way for compliance and facilitated innovation.

While Deaton acknowledged that not everyone would have been satisfied with the proposed guidelines, having a well-defined framework would have allowed companies like Ripple to work towards meeting the requirements within a specified timeframe, fostering both innovation and regulatory compliance.

According to Deaton, the absence of a Safe Harbor Proposal, coupled with the lack of clear parameters regarding token ownership, has contributed to the ongoing legal dispute between Ripple and the SEC. 

Ripple Could Have Reduced Its XRP Holdings

As evidence of Ripple’s commitment to defending itself against the SEC’s allegations, Deaton cited Ripple’s voluntary decision to reduce its XRP holdings to fund its legal fees. 

Had the SEC established a clear threshold for token ownership, Ripple could have gradually reduced its holdings over three to five years, aligning with the prescribed limit.

If Ripple’s percentage ownership of the outstanding XRP was the issue, the SEC could’ve drawn the line and gave Ripple 3-5 years to reduce their holdings to meet the maximum threshold set. Hell, Ripple’s done that anyway to help pay $200 Million in legal fees to fight the SEC. ?‍♂️

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

Deaton’s arguments also raised questions regarding the role played by former SEC Chairperson Jay Clayton and former SEC Director William Hinman in perpetuating regulatory uncertainty within the cryptocurrency industry. 

The lawyer emphasized the significance of recognizing their shared responsibility to understand why the United States lags in providing a supportive and unambiguous regulatory environment for the crypto space.