Thread by @JohnEDeaton1

AN OPEN LETTER TO @FinancialCmte @FSCDems @GaryGensler @HesterPeirce @SECHerrenLee FSC and SEC Members

I write ✍️ to you on this public platform hoping you will truly understand the damage being inflicted on innocent holders of #XRP. I represent 68,700 of those holders.

We are users, developers, small businesses, content providers and investors in the digital asset #XRP.

In 2015 #XRP became the first regulated cryptocurrency in the United States, when the @DOJCivil & #FinCEN settled w/ @Ripple declaring #XRP a

“convertible virtual currency.”

After #FinCEN declared #XRP a virtual currency, forcing sales to comply w/ U.S. Banking Laws (not securities laws), foreign governments, including the U.K. 🇬🇧, Japan 🇯🇵, Switzerland 🇨🇭, Singapore 🇸🇬, and the UAE 🇦🇪, followed suit - all declaring #XRP - a non-security.

On December 22, 2020, five years after #FinCEN classified #XRP a virtual currency AND 7 1/2 years after #XRP had been publicly traded in the U.S., on Chair Clayton’s last day, @SECGov filed suit 🆚 @Ripple - alleging #XRP to be an investment contract (aka a security) w/ Ripple.

As you all know, any commodity, asset or product can be packaged, marketed, and schemed into an offer and sale of an unregistered security. In fact some of the different assets or products that have been packaged or schemed into an offer and sale of an unregistered security are:

1) Orange 🍊 Groves;

2) Whiskey 🥃;

3) Beavers 🦫;

4) Chinchillas;

5) Oil & Gas⛽️;

6) Condos; and

7) #Bitcoin;

to name a few.

The Supreme Court has never found the underlying asset, itself, to be the security.

Whiskey 🥃 is still 🥃, and beavers 🦫 are still 🦫s.

In Howey, the Court didn’t find the 🍊 as a security, but found the scheme behind the offer and sale of the 🍊 groves the security.

Usually, the SEC argues a specific transfer at a specific time, by Ripple or it’s executives, constituted the sale of an unregistered security.

But in @SECGov 🆚 @Ripple the SEC is alleging #XRP itself is a security. The SEC claims all sales of #XRP are illegal. Period. It is the most reckless and dangerous argument the SEC could make. Because of this unprecedented argument, over 68K #XRPHolders decided to fight back.

I’ve been granted amici curiae status for the benefit of #XRPHolders. The SEC, however, isn’t too happy about it. They attacked me personally and continue to take shots at the very people they claim they are protecting while prosecuting this case espousing an outrageous theory.

Although the SEC laments amici’s presence in this case, the SEC has only itself to blame for amici’s involvement. In short, if the SEC had clarified its theory regarding #XRP, the SEC would’ve prevented amici’s involvement entirely and could’ve pursued Ripple w/o involving us.

9 days after the SEC filed the excessively broad complaint 🆚 the interests of present-day #XRPHolders, I Petitioned for a Writ of Mandamus requesting the SEC:

“amend its complaint against Ripple to exclude present-day #XRP, purchased by investors with no connection to Ripple.”

The SEC’s sweeping allegations regarding #XRP have been at issue since the filing of this case. In the Complaint and during the litigation of this case, the SEC has repeatedly used conclusory language and allegations suggesting #XRP itself - is ALWAYS a security.

At its core, the Writ challenged the SEC’s good faith basis alleging that #XRP is a security per se.

Within the Complaint:

Paragraph 1 labels #XRP “a digital asset security”;

Paragraph 265 says “Because #XRP is fungible”;

Paragraph 267 says “The nature of #XRP itself”;

Paragraph 327 says “The very nature of #XRP”; etc.

In fact during the very first hearing, Judge Netburn confronted the SEC and challenged the implausible theory that “every individual in the world who is selling XRP [is] committing a Section 5 violation.”

- Judge Netburn

The SEC’s response to the Judge’s comment says everything. The SEC didn’t dispute the premise of the Judge’s question. The SEC instead claimed that #XRP transactions by the rest of the world would likely be exempt under Section 4.

(An exchange or any issuer would NOT be exempt)

The SEC’s response was disingenuous at best and downright misleading at worst. Section 4 exemptions ONLY apply to a security subject to registration under Section 5. In sum, the SEC confirmed that regardless of the seller or circumstances of the sale - #XRP is a security per se.

Why is this so dangerous and why has @GaryGensler allowed it to be argued?

Because if this premise is accepted by the Court, it would EMPOWER THE SEC to regulate a vast number of parties not included in this case, including digital asset exchanges, vendors, and retail holders.

The SEC’s overreach threatens the interests of not only #XRPHolders, but the exchanges and businesses utilizing #XRP and it implicates ALL other Crypto assets. The ability for retail holders and small businesses to transact in #XRP (and other crypto) could be greatly impaired.

The majority of #XRPHolders were unaware of a company called Ripple when they first acquired #XRP. Tens of thousands of #XRPHolders acquired #XRP for non-investment purposes. Many acquired the minimum amount to establish a trust line w/ the #XRPLedger in order to send 💰 home.

Many acquired it as a form of payment. Content providers like Time Magazine accept #XRP as a form of payment. Thus, Time isn’t an investor and Howey doesn’t apply. #XRP is used as payroll currency. All of these non-investment uses get swept 🧹 into the SEC’s overly broad theory.

#XRPHolders never imagined being implicated in an enforcement action against Ripple and its two executives. We take no position whether @Ripple @bgarlinghouse or @chrislarsensf violated Section 5 of the Securities Act when they offered and sold #XRP during 2013 or yesterday.

The SEC could’ve completely avoided amici’s involvement by simply stipulating secondary market sales of #XRP, independent of Ripple, are not securities. It should’ve been an easy stipulation considering it would be consistent w/ SEC guidance and 76 years of legal precedent.

Had the SEC so stipulated, amici’s involvement in this case would have ended before it began. In fact, even Ripple was clear in communicating its position that amici’s interest would be minimal, if the SEC clarified it was not attempting to establish #XRP as a security per se.

Similarly, in responding to the Mandamus Writ, the SEC could’ve confirmed its suit is not intended to affect the secondary retail market for #XRP in the United States.
But the SEC refused to make such a concession. The @SEC_Enforcement lawyers won’t give up this outrageous claim.

The SEC’s sweeping and illegitimate theory is:

“The XRP traded, even in the secondary market, is the embodiment of those facts, circumstances, promises, and expectations and today represents that investment contract.”

- page 24 of SEC’s opposition to my motion to intervene.

Part 2 👇

https://twitter.com/JohnEDeaton1/status/1546970843502284803