Thread by @JohnEDeaton1

It is mind boggling and absolutely infuriating how lawyers and staff at the SEC and others keep talking about the tokens themselves as being securities.

#Bitcoin is a digital asset that was once packaged, marketed, offered and sold as an investment contract aka a security.

https://twitter.com/cryptolawus/status/1621151150392365059

Just b/c #BTC was utilized by someone as a security, didn’t turn #BTC into a security.

Beavers 🦫 were once offered and sold as an investment contract. 🦫s remained 🦫s, not securities.

Condos and Chinchillas were sold as investment contracts. They didn’t become securities.

If @Ripple offered or sold #XRP as an investment contract at some point during its history - or even if it does today - it does not make #XRP a security. #XRP remains digital code.

The Judge in @LBRYcom ruled LBRY sold #LBC as an investment contract when it made DIRECT sales.

#LBC itself remains software code, nothing else. In LBRY, the Judge made clear that his ruling does NOT apply to secondary market transactions of #LBC.

What does this mean exactly?

It means that #LBC itself is NOT a security. If it was, his ruling would apply to ALL sales.

If the Judge believed the token itself was a security, his ruling would include subsequent sales of the token. But he said his ruling does NOT apply to a subsequent sale of #LBC after LBRY sold it.

The Judge gave a great example in open Court and on the record. He said that when LBRY sold #LBC to Flipside Crypto - that particular transaction constituted the offer and sale of an investment contract aka an unregistered security.

But the Judge said his ruling does NOT apply to any subsequent sale offered or made by Flipside Crypto thereafter.

Clearly, if the Judge believed the token itself was a security, then his ruling would also apply to any sale made by Flipside after purchasing it from LBRY.

Thus, if Flipside sells to you or me directly or through an exchange, the ruling against LBRY doesn’t apply.

The judge is very aware of the fact that there is no way that Flipside would attempt to register #LBC as a security after acquiring it from LBRY. Therefore, his Flipside hypothetical is very significant.

Practically speaking, the Judge rejected the SEC’s embodiment theory that it first articulated in the @Ripple case when the SEC responded to the Motion to Intervene that I filed on behalf of #XRPHolders.

Here is the theory in the SEC’s own words: 👇👇

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

The SEC’s theory is that the token itself including in the secondary market embodies the security.

That’s just a fancy legalese way of saying: “the token itself is a security.”

This novel and dangerous embodiment theory is how the SEC is attempting to expand its jurisdictional reach into secondary market transactions.

The theory stretches Howey beyond recognition.

@NYcryptolawyer’s extensive research article pictured below 👇 attacks the embodiment theory head on.

Lewis’ article shows that no federal appellate court has ever held that the underlying asset subject to an investment contract transaction is itself an investment contract and there is no federal case finding a subsequent transfer of that asset to be a securities transaction.

This is why the LBRY hearing and clarification was so important, not just for #LBC holders but for all crypto token holders.

The SEC can go after direct sales of a token by a promoter, just like they can go after the direct sales of ANY commodity or asset by a promoter.

But the underlying asset is never the security in an investment contract case and Howey requires a Howey analysis at the time of each offer or sale.

This is why I feel confident Judge Torres will deny the SEC’s summary judgment motion in the Ripple #XRP case.

The SEC doesn’t go transaction by transaction and argues that #XRP embodies or represents both the common enterprise and expectation of profits prongs of the Howey test.

@HesterPeirce admitted that her colleagues at the @SECGov perform a “shorthand” analysis and focus on the token itself instead of the circumstances surrounding the offering and sale of the token (ie “the contract, transaction or scheme”).

In my amicus brief in the @Ripple case I said the SEC was analytically lazy and its so-called shorthand constituted an unconstitutional shortcut violating 76 years of caselaw.

We must fight the SEC’s overreach and its attempt to exercise jurisdiction in secondary markets.