Pro-XRP Lawyer Says Federal Judge in Terra Case Who Rejected Favorable Ripple Ruling ‘Got It Wrong’

By The Daily Hodl - 8 months ago - Reading Time: 3 minutes
Fri, Aug 4, 2023 7:55 PM

Pro-XRP Lawyer Says Federal Judge in Terra Case Who Rejected Favorable Ripple Ruling ‘Got It Wrong’

Pro-XRP lawyer John Deaton says that a federal judge erred when rejecting a historic decision during his ruling in the Terra (LUNA) case.

Deaton tells his 286,400 Twitter followers that the judge should have sided with Judge Analisa Torres’ ruling that Ripple Lab’s automated, open market sales of XRP do not count as securities.

A recent ruling by Southern District of New York Judge Jed Rakoff has allowed the SEC to go forward with its case against Terraform Labs and its founder Do Kwon, while also rejecting the distinction made in the Ripple case between public and institutional sales.

Kwon is accused of mishandling customer funds and lying to investors, which ultimately led to the multibillion-dollar downfall of the Terra ecosystem in 2022.

Deaton says Rakoff arrived at a different conclusion despite the judges both seemingly agreeing that secondary buyers may have expected profits from what Ripple said and did.

“But is Rakoff’s finding that secondary market purchasers relied on the Defendants’ statements and thus, expected profits, vastly different from what Torres said?

NOT AT ALL.

Torres said of course some buyers in the secondary market on exchanges could’ve relied on Ripple in expecting profits. Read for yourself.”

Deaton says that Rakoff misapplied the Howey Test, which was established by the Supreme Court to determine whether certain transactions qualify as investment contracts subject to securities laws.

“Torres did not say that secondary sales could never be securities! In the Ripple case, the SEC simply failed to establish that prong by credible EVIDENCE. Full stop. Here’s where I believe Rakoff got it wrong. I believe he reacted to the perceived inconsistent end result between institutional investors and retail investors after Torres applied the Howey Test to the facts.”

According to Deaton, Rakoff also wrongly says in his ruling that Torres inappropriately made a distinction between different types of investors — institutional versus secondary market.

“[Torres] just applied the factors to the facts surrounding the different sales. Judge Rakoff said Howey doesn’t focus on the type of investor, and I agree. But that’s not what Torres did. The distinction between investor types comes out in the RESULT not the ANALYSIS.”

Lastly, Deaton points out that the circumstances around XRP and the Terra ecosystem have stark differences.

“According to the judge, the defendants in Terra set out on a marketing campaign that made it known that sales from all crypto assets –  no matter where the coins were purchased – would be funneled back into the overall project (ie. the common enterprise) and then all the holders would make more.

As [Ripple’s Chief Technology Officer (CTO) David Schwartz] stated, this type of scheme is generally not consistent with other cryptocurrencies, specifically XRP. Because of the defendants’ unique approach, Rakoff found that these statements would’ve motivated secondary purchasers just as much as institutional purchasers.”

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