The US Securities and Exchange Commission (SEC) has sought to stretch the Howey Test to include digital assets, particularly in its case against Ripple. Bill Morgan, a digital assets enthusiast, recently made note of this attempt and a submission from John E. Deaton. Deaton, a Managing Partner of the Deaton Law Firm, submitted a proposal to Judge Analisa Torres of the US District Court of the Southern District of New York.

In his proposal, Deaton argued that the SEC’s interpretation of the Howey Test is far reaching, even attempting to classify existing XRP tokens sold in secondary markets as securities. Deaton labelled the SEC’s approach as a “shortcut”, robbing holders of the transaction-level analysis he believes is necessary for the Howey Test.

In the submission, Deaton also notes that the SEC’s actions are amusing, if not for the punitive implications on innocent holders of XRP. He proposes that the Howey Test must be applied to each transaction as it took place in order to generate a valid conclusion.

It is clear that the SEC is leaving no stone unturned in order to lay the appropriates charges against Ripple. To the asset itself, to the existing XRP tokens, and to those purchasing them in secondary markets. In Deaton’s submission, the absurdity of this is palpable, yet it is still a legal issue which will be addressed in court by Judge Analisa Torres.

It remains to be seen what the verdict of the US court will be, and how the law might be changed or set in stone by the outcome of the case. Will Ripple be held liable, and what precedent will be set which will impact digital assets and the financial sector at large? All eyes will be on Judge Torres’s judgment when all is said and done.



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