thecryptobasic.com
Crypto enthusiasts spot inconsistency in the SEC’s legal argument after the regulator claimed that crypto assets themselves represent the embodiment of an investment contract.
This was the SEC lawyers’ position in yesterday’s legal hearing centered on Binance’s attempt to get an enforcement action from the securities regulator dismissed.
SEC v. Binance Dismissal Hearing
For context, the SEC charged Binance and Coinbase in June with violating federal laws by operating unregistered securities exchanges and listing crypto assets deemed investment contracts.
In the Binance lawsuit, the SEC labeled 12 crypto assets as securities, including FIL, BUSD, BNB, ADA, and AXS. On the contrary, Binance and Binance.US filed a dismissal motion asking U.S. District Judge Amy Berman Jackson to dismiss the lawsuit.
Reports from the courtroom during Monday’s hearing suggested that the SEC claimed the Howey Test, a longstanding security test in the United States, was clear for all assets, including cryptos.
According to reports from the courtroom, the commission’s lawyers claimed that the crypto tokens listed in the Binance case represent the investment contracts, adding that the assets are the embodiment of a security.
Fox Journalist and Deaton React
However, the SEC’s argument did not sit well in the crypto community, as enthusiasts spotted significant inconsistencies in the theory. Notably, Attorney John Deaton, who represents thousands of XRP holders in the SEC v. Ripple case, commented on the development.
The pro-XRP lawyer revealed that the SEC first expressed the “embodiment theory” when responding to his motion to intervene on behalf of XRP holders in the Ripple legal tussle.
An excerpt from the SEC’s response read:
“The XRP traded, even in the secondary market, is the embodiment of those facts, circumstances, promises, and expectations, and today represents that investment contract.”
Attorney Deaton pointed out that the SEC has failed to cite any case law to support its embodiment theory.
The @SECGov FIRST articulated its “embodiment theory” when it responded to my Motion to Intervene on behalf of #XRP holders in the @Ripple case. Read it for yourself:
NOTICE: The SEC fails to cite a
single case or any legal precedent or authority in support of this new theory. https://t.co/7NEm7fxS4C pic.twitter.com/BuGSSP7N8Q— John E Deaton (@JohnEDeaton1) January 22, 2024
Additionally, Fox Business Journalist Eleanor Terrett was among those who commented about the SEC’s inconsistent arguments.
In an X post yesterday, the pro-crypto journalist noted that two federal judges, Judge Analisa Torres in the Ripple lawsuit and Judge Jed Rakoff in the Terra case, declared that the token in itself is not a security.
She pointed out that the SEC also acknowledged this fact in both cases as it described the tokens as merely computer codes. Per Terrett, the SEC’s inconsistent legal theories were seen in the Ripple and LBRY cases.
Both Judge Torres and Judge Rakoff declared the token itself not a security and if I remember correctly @SECGov lawyers in both cases said they don't think the tokens themselves represent investment contracts because they are merely "computer code."
We saw this in the @Ripple… https://t.co/jfrLkd8px3
— Eleanor Terrett (@EleanorTerrett) January 22, 2024
Judge Torres Calls Out SEC Inconsistencies
For instance, the judge in the Ripple case called out the SEC for presenting inconsistent arguments about Ripple’s other distributions of XRP.
According to the judge, at one point, the SEC argued that Ripple’s other distributions were the sale of unregistered securities as they were made in exchange for non-cash considerations.
She added that the SEC later changed the argument by claiming that Ripple’s other distributions of XRP were sold indirectly to the public to raise liquidity for the company.