Thread by @anothrkevinchen

1. The #SEC is missing a nuance to #Ripple’s due process defense. Ripple’s point is not (just) that the Securities Act/Howey test is vague. It’s that the SEC is directly responsible for #XRP’s uncertain status as a security.
👇

2. Constitutional due process generally requires that persons/entities must receive fair notice of conduct that is legally forbidden. This applies to criminal laws and civil laws imposing penalties.

3. Defendants making a due process challenge usually argue a statute fails to give fair notice because the statute is vague.

4. A statute is vague if a “person of ordinary intelligence” can’t determine what conduct is forbidden, or if the statute encourages arbitrary or discriminatory enforcement.

5. A standard vagueness argument might go something like this: the Securities Act and Howey test make it impossible to know whether #XRP is a security. So, #Ripple could not know the Securities Act covers XRP offerings/sales/etc.

6. As the #SEC pointed out, courts have already rejected this argument 👆 for other cryptos. But #Ripple is not (only) making this argument.

7. #Ripple's point is that the #SEC actively created confusion over #XRP’s status through conflicting guidance. E.g., Director Hinman made a public statement that the SEC does not consider bitcoin or ether to be securities.

8. It’s less about how the law can be interpreted clearly and more about what the agency is doing to sow confusion.

9. #Ripple might be relying on FCC v. Fox Television Stations, Inc., a 2012 SCOTUS case.
supremecourt.gov/opinions/11pdf…

10. The FCC sanctioned Fox for broadcasting “fleeting expletives” without first giving notice that such content was indecent. Only after the broadcasts did the FCC enact guidelines stating the content was sanctionable.

11. SCOTUS held the FCC failed to provide fair notice before sanctioning Fox and that its indecency policy changes did not “provide a person of ordinary intelligence fair notice of what is prohibited.”

12. So, a federal agency’s conduct created confusion and private actors cannot be punished for not knowing what conduct is prohibited as a result.

13. The #SEC is arguably doing something similar to #Ripple—giving tacit approval of #XRP and then changing course.

14. To be fair, #Ripple’s argument here is a harder sell, given that the #SEC has perhaps not given “formal” guidance to create confusion (as the FCC did in Fox). And this seems to be an untested argument in the crypto space.

15. So . . . it will be very interesting to see how #Ripple’s due process defense plays out.