Lawyer John E Deaton made a new analysis regarding the future of the lawsuit.
Lawyer John E Deaton on twitter made a new analysis regarding the future of the lawsuit. He noted:
IS RIPPLE GOING TO LOSE BECAUSE @LBRYcom LOST?
I predicted if LBRY lost 2 things would happen: 1) the SEC would rush the decision to Judge Torres acting as if the Supreme Court ruled; and 2) people would come out of the shadows and claim Ripple & XRP will share the same fate.
And that’s exactly what we’ve seen. Many of these folks haven’t read 1 brief in the case and the ones that did, read the SEC’s last brief (which, in all honesty, was the SEC’s best work product in the case).It was better b/c it was a REPLY brief, responding to Ripple’s arguments.
But Ripple doesn’t have the BURDEN OF PROOF – the SEC does. The SEC did a decent job at replying to Ripple’s pre-1934 Blue Sky Laws argument. The SEC also did a decent job attacking Ripple’s argument that there MUST be an underlying contract for an investment contract to exist.
Some of you may remember, when Ripple’s initial summary judgment brief was filed, I immediately said it was an APPELLATE READY brief and that it was written specifically for the 2nd Circuit and above. Ripple is hoping to win at the District Court but is playing the long game.
I’m on video stating that it was a brilliant argument and that I hated it for the District Court level. For example, Ripple argues that the word “scheme” used by the Supreme Court in Howey applies ONLY after the Court first finds that an underlying contract exists.
I don’t believe Judge Torres is going to agree with that argument. It would require her to believe Judge Castel was wrong in Telegram as well as several appellate courts. Ripple’s best chances at winning at THIS LEVEL is with a strict Howey analysis – which brings us to LBRY.
The Ripple/XRP case is in the 2nd Circuit. LBRY isn’t. Plus, LBRY didn’t contest the common enterprise factor – Ripple AND #XRPHolders, who were granted Amicus by the Judge more than one year before any other Amici joined, VIGOROUSLY contest the common enterprise prong of Howey.
A COMMON ENTERPRISE UNDER THE LAW: “The existence of a common enterprise, may be demonstrated through either horizontal commonality or vertical commonality.” There are 2 types of VERTICAL COMMONALITY: 1) strict vertical commonality: and 2) broad vertical commonality.
The 2nd Circuit has REJECTED broad vertical commonality. AND The 2nd Circuit has NEVER officially adopted strict vertical commonality (although district courts have discussed it). What this means is the SEC needs to establish horizontal commonality to GUARANTEE a win.
I will show how the SEC can’t meet its burden regarding secondary market sales of XRP (and maybe not even meet its burden regarding direct sales by Ripple, TODAY). Strict vertical commonality “requires that the fortunes of investors be tied to the fortunes of the promoter.”
There is no vertical commonality here b/c the fortunes of #XRPHolders are demonstrably not intertwined w/ Ripple and its efforts, but instead hinge on independent market forces. How many times has Ripple announced a partnership and XRP goes down, not up? XRP moves w/ #Bitcoin
There is absolutely no correlation between XRP’s price and the efforts of Ripple. Plus, #XRPHolders can stake or collateralize their XRP and obtain a financial benefit whether Ripple is successful or not (this also arguably destroys the 3rd factor of Howey).
HORIZONTAL COMMONALITY: “Horizontal commonality is established when investors’ assets are pooled and the fortunes of each investor is tied to the fortunes of other investors as well as to the success of the overall enterprise.”
Horizontal commonality requires that proceeds from sales be POOLED to support the investment that will result in the distribution of profits. If Ripple held an ICO, horizontal commonality could be met, but it didn’t. It sold pre-IPO shares to VCs. But what about sales of XRP?
The vast majority of sales of XRP are made in the secondary market unrelated to Ripple. Ripple’s expert can show: ONLY ONE PERCENT of XRP trading involves Ripple. Thus, there has been no “pooling” as required by horizontal commonality b/c Ripple doesn’t “pool” 99% of XRP sales.
I submitted 3K XRP purchaser affidavits demonstrating XRP holders do not rely on the efforts of Ripple to generate a profit or to receive a financial benefit. The affidavits show the judge how #XRPHolders receive a financial benefit – independent of Ripple – by owning XRP itself.
This also kills the 3rd Howey factor. We explained how the token holder can use XRP as collateral to obtain financing for a fiat loan or stake XRP on independent platforms (think Celsius). Staking XRP allows the holder to earn interest and/or receive additional compensation.
In sum, the token itself generates a benefit to the holders by loaning or collateralizing the token. The Supreme Court made clear that when a buyer “(has) been left to (its) own devices for realizing upon (its) rights” there is no investment contract. Joiner,320 U.S. 344 at 348.
I pointed out if Ripple ceased to exist, XRP, #XRPholders, and companies, like @Spend_The_Bits could flourish and if Ripple’s escrow was burned, basic supply & demand economics suggests a price increase for XRP (assuming half of the existing supply was destroyed).
In short, individual holders and businesses w/in the XRP ecosystem and alleged to be in a common enterprise, could benefit in Ripple’s demise like @Jay_SpendDBits stated in his amcius brief: “If STB were to scale, it could, in theory, become a competitor to Ripple’s ODL system.”
Hence, if Ripple ceased to exist and burned its XRP, thus causing others, alleged to be in the common enterprise w/Ripple, to benefit, it is a scenario that does not fit the common enterprise/joint venture scheme the Howey Court envisioned when determining an investment contract.
Applying the law, the truth is #XRPHolders are NOT in a common enterprise w/Ripple or each other. Some XRP holders loan out their XRP, while others do not. Thus, some holders, who choose to stake/loan or collateralize their XRP, benefit financially while Ripple or others do not.
The opposite is also true. The Celsius Bankruptcy proves the point. XRP holders who loaned Celsius their XRP, suffered financial losses Ripple and other #XRPHolders did not. Simply put,the Celsius bankruptcy example destroys any claim of vertical & horizontal commonality.
In Revak (a 2nd Circuit case):“the rents and expenses attributable to each unit were not shared…but were instead the sole responsibility of the unit owner.” #XRPHolders maintain sole responsibility and make profits or losses independent of the fortunes of other purchasers.
I maintain the SEC snatched defeat from the jaws of victory b/c of the grossly over-broad theory it selected to go with. Others can reasonably disagree. But at least I give an analysis of why I believe what I do. When people say Ripple will lose, what exactly does it mean?
For example, I think it’s possible that the Judge could find specific transactions violated the law. For example, Ripple sent 100 people a brochure in 2014. It’s possible the judge could decide that that was an offer of an unregistered security. Is that a win for the SEC?
I still firmly believe the Judge will deny the @SECGov’s motion for summary judgment as it is written. If I’m wrong, I’m wrong. It won’t be the first time. But we can go back and see how I was wrong because I laid it out.