Deaton Highlights a Crucial Legal Theory That Could Impact Ripple Lawsuit

Attorney Deaton sheds light on a major legal precedent from the Second Circuit that could impact the outcome of the SEC’s legal battles against Coinbase and Ripple.

Coinbase’s chief legal officer (CLO) Paul Grewal and pro-XRP lawyer John Deaton have identified an important case that could determine the outcome of the SEC’s lawsuits against Ripple and Coinbase.

Revak v. SEC Realty Second Circuit Decision

In a recent tweet, Grewal expressed his admiration for a Second Circuit decision in the 1994 case involving Revak and SEC Realty.

Notably, the CLO identified a crucial factor in the decision, underscoring the recklessness in defining security through an ecosystem access lens.

Grewal focused on a portion of the decision where the Second Circuit held that the correlation between a promoter’s efforts and investors’ fortune does not easily satisfy the Howey test.

To interpret the Howey test, the court ruled that a common enterprise can be established only when “the fortuity of the investments collectively is essentially dependent upon promoter expertise.”

Deaton Reacts

Grewal’s tweet stirred a reaction from Deaton, who drew parallels between the Revak case and the SEC’s legal tussles with Ripple, Coinbase, and LBRY.

The pro-XRP lawyer pointed out the jurisdictional nuances in the lawsuits. While Deaton said the LBRY case is in the First Circuit, he mentioned that the Ripple and Coinbase lawsuits against the SEC are in the Second Circuit.

According to Deaton, the cases involving Ripple and Coinbase are governed by the Second Circuit and the Revak decision. In response, Grewal agreed with Attorney Deaton’s opinion on the matter.

Yes sir. Yes they are.

— paulgrewal.eth (@iampaulgrewal) January 28, 2024

Importance of Ripple and Coinbase Cases

The significance of the SEC cases against Coinbase and Ripple cannot be overemphasized, as both lawsuits are expected to impact the future of the crypto industry.

The Ripple lawsuit is in the final stage (remedies), where the court will determine the appropriate penalty the company will pay for violating the law through its institutional sales of XRP.

Per the latest update in the lawsuit, the SEC wants the court to compel Ripple to produce some records relating to its post-complaint institutional XRP sales.

On the other hand, the Coinbase lawsuit is still in its early phase. The SEC and Coinbase are still awaiting the court’s decision on the hearing of Coinbase’s motion to dismiss the case.

Some legal experts, including Attorney James Murphy (a.k.a. MetaLawMan), speculate that the court will issue the decision within three months.

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