Deaton Highlights Where Terra Judge Was Wrong About Ripple Ruling

Attorney John Deaton has explained how the judge in charge of the Terra lawsuit wrongfully addressed Judge Torres’ ruling in the SEC v. Ripple case. 

Pro-XRP lawyer John Deaton has weighed in on the debate regarding US District Judge Jed Rakoff’s ruling in the SEC v. Terra ruling. 

Terra Judge Disagrees With Ripple Ruling

Recall that Judge Rakoff disagreed with Judge Analisa Torres’ reasoning in the Ripple case. He focused on Judge Torres’ distinction between Ripple’s sales to retail and institutional investors.

As reported by The Crypto Basic, Judge Torres ruled that Ripple’s programmatic sales on digital exchanges were non-securities. This is because these retail buyers did not expect to profit directly from Ripple’s efforts.

In contrast, Judge Torres considered Ripple’s past XRP sales to institutional investors to be securities. According to her, institutional buyers of XRP expected to make gains via the efforts of Ripple.

However, the Terra judge disagreed with Judge Torres’ reasoning, stating that the Howey test – a longstanding security test in the US- does not distinguish between the types of buyers that Judge Torres drew.

Deaton Says the Ruling Isn’t Inconsistent

With many legal experts, including Ripple’s CLO Stuart Alderoty, commenting on Judge Rakoff’s ruling and how it affects the Ripple case, Attorney Deaton has also joined the debate.

In a recent thread, Attorney Deaton noted that the Terra judge’s ruling is not as inconsistent as many people have made it seem.

Additionally, Deaton was unsurprised that Judge Rakoff addressed Judge Torres’ decision, given that Terra asked the court to dismiss the SEC lawsuit using the Ripple ruling. His only surprise was how the judge chose to address the Ripple decision. 

He pointed out that the Terra judge has built a reputation for being critical and assertive while criticizing other judges’ decisions.

But when I looked more into Senior Judge Jed Saul Rakoff, I became less surprised. He has built a reputation for being very critical and asserting his personal beliefs into his opinions, while criticizing fellow judges. Not everyone was surprised about Rakoff’s criticisms. ? https://t.co/KseQg0llpS

— John E Deaton (@JohnEDeaton1) August 3, 2023

Terra Judge Not Working For SEC 

Furthermore, Attorney Deaton dismissed claims that Rakoff was working in favor of the SEC, highlighting how the judge has previously criticized the regulatory agency.

Per Deaton, Judge Rakoff is known for his strong opinions and for being a consumer activist in his rulings. Based on Judge Rakoff’s role in protecting investors, Attorney Deaton said he would not criticize him.

Rakoff is known for his strong opinions and for being a consumer activist in his rulings. He’s been criticized and reversed by the Appellate Court more than a few times. He’s spoken out against mass incarceration. Ironically, he’s viewed as a defender of the consumer. Thus, I’m…

— John E Deaton (@JohnEDeaton1) August 3, 2023

The pro-XRP lawyer asserted that Judge Rakoff faced a different circumstance than what Judge Torres experienced in the Ripple case.

He explained that Terra promised investors that it would funnel the money made from its crypto sales into the overall project while assuring holders of massive gains.

“Because of the defendants’ [Terra’s] unique approach, Rakoff found that these statements would’ve motivated secondary purchasers just as much as institutional purchasers,” said Deaton.

Attorney Deaton said Judge Rakoff’s findings about the expectation of profit by retail buyers of Terra tokens do not contradict what Judge Torres said in her ruling.

Where Terra Judge Got It Wrong 

Meanwhile, Deaton pointed out where Judge Rakoff erred in his ruling. He asserted that Judge Rakoff was wrong by stating that Torres focused on the type of investor in the ruling. 

According to Deaton, Rakoff reacted to the inconsistent result between retail and institutional investors after the Ripple judge applied the Howey test to the facts of the case.

Torres did not say that secondary sales could never be securities! In the Ripple case, the SEC simply failed to establish that prong by credible EVIDENCE. Full stop.

Here’s where I believe Rakoff got it wrong. I belive he reacted to the perceived inconsistent end result…

— John E Deaton (@JohnEDeaton1) August 3, 2023

He stressed that when Judge Torres applied the Howey test to the facts of the case, institutional investors entered into a common enterprise with Ripple, thus constituting an investment contract.

On the other hand, retail buyers bought XRP from digital exchanges without knowing whether they purchased the coin from Ripple. Thus, they did not expect any profit from the company’s efforts.

Despite stating that the rationale of the Securities Act is to protect retail investors, Deaton said it is not Judge Torres’ duty to ensure that the results are consistent with policy considerations behind the 1934 Securities Act.

“Her job is to fairly and objectively, and without favor or passion, apply the test to each type of #XRP transaction alleged by the SEC to violate the law. After an objective Howey application to the facts before the judge, the result is the result – regardless of the level of sophistication of the investors. Period,” he said.