Deaton Says SEC Losing on Appeal Against Ripple Could Set Precedent for Crypto Firms

Attorney John Deaton provides an analysis of how the SEC losing on appeal against Ripple could set a precedent for the broader cryptocurrency industry. 

The recent developments in the SEC v. Ripple case have continued to stir a series of speculations.

SEC’s Next Move Stirs Speculations

Notably, the crypto community has been speculating on the SEC’s next move in the Ripple lawsuit following its decision to dismiss charges against Brad Garlinghouse and Chris Larsen.

Many crypto enthusiasts believe that the move sets the tone for a potential settlement or a faster appeal. Most commentators speculate that the SEC dropped the charges to file an appeal against Ripple’s victory immediately.

Deaton Highlights Implications of SEC Losing Appeal Against Ripple

Consequently, prominent XRP holder Andrew Sperazza asked Crypto-Law founder Attorney John Deaton whether the SEC would set a precedent for the broader crypto industry if it loses on appeal.

Responding, Attorney Deaton noted that the SEC losing on appeal would set a precedent that could weaken the regulator while emboldening crypto-related companies to fight more against the commission’s adverse enforcement actions.

Per Deaton, Judge Analisa Torres already clarified that her ruling in the case is based on the application of the Howey Test to the relevant facts. As a result, Deaton said if the SEC loses on appeal, it can easily argue that the verdict applies only to Ripple and XRP, as no other crypto project has similar facts.

Arguably it does. Judge Torres made clear that all she did was apply Howey to the facts of Ripple and XRP and so even if SEC loses, it can argue it just lost to XRP and Ripple and no other tokens have same facts. But a loss on appeal weakens the SEC and emboldens companies to…

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

SEC Can’t Appeal Immediately

Meanwhile, Attorney Deaton emphasized that the SEC cannot appeal immediately. However, he mentioned that the SEC’s decision to drop charges against Ripple execs could make an appeal happen sooner than expected.

Deaton remarked while reacting to claims by Ran Neuner, who indicated that the SEC can now appeal immediately after dropping charges against Ripple execs.

Reacting, Deaton asserted that the penalty stage must first occur before the SEC can appeal.

Although Ran is correct that an appeal by the SEC will happen sooner because the SEC chose to dismiss the case against @bgarlinghouse and @chrislarsensf (because the April 2024 trial will now not happen), it is incorrect to say the SEC can appeal immediately.

The penalty phase… https://t.co/kXoHL61yL3

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

The pro-XRP lawyer provided further insight by recounting the incidents at the SEC v. LBRY lawsuit. He mentioned that the LBRY judge issued the summary judgment on November 7, 2022, and it took eight months before the court entered the final judgment on July 11, 2023.

“During those eight months, there was additional discovery, including interrogatories, requests for the production of documents (bank statements, etc), and deposition testimony. All followed by filing written briefs and conducting oral argument,” he said.

Despite the court releasing the final judgment, LBRY waited nearly two months before filing an appeal on September 7, 2023.

Ripple’s Effort to Reduce Penalty

Attorney Deaton also noted that the SEC initially requested a $23 million fine from LBRY. However, the commission ended up asking for a $130,000 fine after the remedies hearing.

It bears mentioning that Ripple could pay up to $770M in penalty for violating securities law via its institutional sales of XRP.

Interestingly, Deaton speculated that Ripple would attempt to exempt On-Demand Liquidity (ODL) sales and legitimate business costs in order to reduce the fine.