An obscure footnote in a Ripple opposition brief last year could play a role in the ongoing battle between the United States securities regulator and Ripple, according to pro-XRP lawyer John Deaton.
Deaton took to Twitter on May 22, explaining that a short footnote in a Ripple legal document — one that he had only just recently noticed — confirmed that XRP was in fact discussed “between SEC staff prior to the Hinman speech.”
This is potentially significant as internal debates between SEC officials over whether XRP is a security or not could tip the scales of the ongoing lawsuit between the United States Securities and Exchange Commission (SEC) and Ripple.
Read this short please. When you look at all the other SEC-LIT-EMAILS cited in Ripple’s opposition, they are redacted. The one about there being reasonable grounds to not believe XRP satisfies all the Howey factors is not redacted. https://t.co/qoaCbjk7rg pic.twitter.com/Nc6kfNMJ4c
— John E Deaton (@JohnEDeaton1) May 21, 2023
The SEC initially took legal action against Ripple in December 2020 alleging that the sale of its cryptocurrency, XRP, was representing an unregistered securities offering.
Ripple has denied that XRP is a security, arguing it does not satisfy the Howey Test, which is used to assess whether a transaction meets the criteria of a security transaction.
The footnote, which Deaton believes comes from a third-party outside of the SEC, stated:
“There are reasonable grounds to conclude that XRP does not satisfy all elements of the Howey Analysis and is therefore not a ‘security’ for purposes of the federal securities laws.”
In a May 22 Twitter Spaces, hosted by Fox Business journalist Eleanor Terrett, Deaton argued this “clearly states” that XRP was discussed, because “somebody at the SEC cited this person saying it is not a security, or they forwarded the email within the email chain.”
“I’m 95% confident that the statement, reasonable grounds etc, is someone other than the SEC official…it’s still big news, it’s in these litigation emails, it proves what we all thought.”
While Deaton noted that the SEC “made no comment on the record” if XRP was ever internally discussed, he did reiterate that back in June 2018, XRP was the third largest crypto asset behind Bitcoin (BTC) and Ethereum (ETH).
In Hinman’s Speech, it was stated that Bitcoin and Ethereum were not securities, and it “appears that some at the SEC may have believed XRP should be treated no differently than Bitcoin and Ethereum,” according to Deaton.
Why give the speech(Hinman ETH Free Pass)? pic.twitter.com/TQ28VP5mUc
— Digital Asset Investor (@digitalassetbuy) May 21, 2023
“Someone shared that market participants did not believe XRP was a security,” he said, adding:
“Everything that an XRP holder has been shouting for the past couple of years, it has absolutely confirmed that XRP has been discussed.”
In comments to Cointelegraph, Deaton pointed out that the clear giveaway was its citation, “SEC-LIT,” whereas other emails referenced were cited as “SEC-PROD.”
He further explained that these documents are “the Hinman emails and speech drafts” that the SEC objected to producing, but the documents were still required to be litigated.
Related: Ripple and SEC seek extension for unsealing Hinman documents
“This tells me that the statement about XRP not satisfying Howey is NOT a direct quote from a senior SEC official – otherwise it would’ve been redacted” he tweeted.
Deaton said that the community should keep an eye on June 13, where “we will find out to what extent” this will impact the case, which is when the Hinman materials will likely be unsealed.
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