Top Lawyer Shares New Evidence That Weakens SEC’s Common Enterprise Argument Against Ripple

Attorney Deaton shares new evidence that pokes holes in SEC’s common enterprise argument in the ongoing Ripple lawsuit.

CryptoLaw founder John Deaton has continued to poke holes in SEC’s argument in its case against leading blockchain company Ripple.

According to attorney Deaton, Jaskaran Kambo, founder and CEO of cryptocurrency payment app SpendTheBits (STB), is one XRP Ledger developer who never received financial nor technical support from Ripple while building on XRPL.

I found SpendTheBits when I was looking for developers on the #XRPL who had not received a dime or any assistance from @Ripple. In fact, I believe Ripple, @bgarlinghouse and @chrislarsensf were completely unaware of @Jay_SpendDBits and his STB app. STB filed an amicus brief in… https://t.co/GUM6kkDXzU

— John E Deaton (@JohnEDeaton1) June 27, 2023

As a matter of fact, Deaton claimed he discovered Kambo and SpendTheBits when Ripple and two of its executives charged by the SEC- Chris Larsen and Brad Garlinghouse- were completely unaware of the company.

SpendTheBits Amicus Brief Weakens SEC Argument

Notably, SpendTheBits was among the entities that filed amicus curiae briefs in the SEC lawsuit supporting Ripple. Commenting on the development, Deaton said SpendTheBits amicus brief demonstrates an inherent flaw in SEC’s common enterprise argument.

Deaton noted that he would not be surprised if Judge Analisa Torres references SpendTheBits’ amicus brief in the summary judgment.

Per Deaton, the amicus briefs filed by SpendTheBits and TapJets will destroy the SEC’s common enterprise theory because the developers did not receive financial and technical support from Ripple.

“I think STB and TapJets are the best examples destroying the SEC’s common enterprise argument,” said attorney Deaton.

Recall that TapJets, a private jet charter service, also filed an amicus curiae brief in the Ripple lawsuit. Meanwhile, Deaton declares an interest in investing in SpendTheBits at the appropriate time.

SEC’s Contradictory Common Enterprise Argument

For context, the common enterprise is one of the prongs of the Howey test- a legal test that aims to determine whether a transaction qualifies as an investment contract. Howey’s common enterprise prong helps the court determine whether investors’ profits are tied to each other.

The SEC has been making contradictory claims to justify the common enterprise theory. Firstly, the SEC argued that Ripple was a common enterprise.

However, the commission abandoned this position after Ripple’s counsel provided proof showing that investors did not receive any profit from the company by merely holding XRP.

Consequently, the SEC abandoned this claim while arguing that the entire XRP ecosystem is the common enterprise in the Ripple case.

Notably, the entire XRP ecosystem comprises all XRP holders globally, all global exchanges that list the coin, and all vendors that accept the coin as a payment method.

To further back the argument, the SEC hired an expert witness who testified that XRP holders relied on Ripple’s efforts to make profits. Interestingly, Judge Torres struck out the expert’s opinion after Ripple provided 3K affidavits from XRP holders who argued otherwise.

Not giving up, the SEC argued that XRP is the common enterprise, an argument Deaton calls “the schizophrenic defense.”