Deaton Says Ripple Vast XRP Ownership Not the Issue In SEC Lawsuit

In a June 20 tweet, Deaton, CryptoLaw founder and pro-XRP lawyer, recounted factors that could have prevented the SEC lawsuit against Ripple Labs. 

In the posts, the lawyer blamed former SEC Chairman Jay Clayton and Bill Hinman for not establishing clarity for crypto during their tenure.

Deaton elucidated the potential implications of a Safe Harbor proposal by the US SEC which would have provided regulatory clarity to the crypto industry and possibly prevented the ongoing legal battle. 

Safe Harbor Proposal as a Potential Game Changer to Crypto Regulation

A Safe Harbor proposal allows token issues a grace period to develop their network free of federal securities laws under stipulated conditions. Deaton argues that a Safe Harbor would have granted Ripple ample time to reduce its holdings and meet the predetermined threshold.

Deaton believes that the absence of clear guidelines and a safe harbor framework prevented the US from keeping up with the rapidly evolving cryptocurrency industry. While emphasizing the importance of a Safe Harbor proposal, the CryptoLaw founder recalled a meeting held on March 28, 2018.

The meeting was between venture capital Andreessen Horowitz-owned firm a16z and former SEC director Bill Hinman. At the meeting, a16z submitted a lengthy memo alongside a Safe Harbor Proposal. Deaton argues that although the Safe Harbor proposal was originally for Ether alone, it could have been applicable to other tokens.

According to attorney Deaton, there is a possibility that a16z’s Safe Harbor proposal influenced the SEC Commissioner Hester Peirce’s similar proposal submitted in 2020. In April 2020, the commissioner presented a Safe Harbor Proposal with three modifications.

Potential Implication of a Safe Harbor Approach to Crypto Regulations

In his tweets, Deaton highlighted the potential benefits a safe harbor approach could have given Ripple, LBRY, and other crypto firms.  Under a safe harbor approach, these firms could have received a fair notice. 

The notice could have given them explicit criteria for decentralization and granted them a 3 to 5-year timeframe to meet the stipulated requirements and establish their tokens as commodities. Doing so would have paved the way for compliance and foster innovation.

While the proposed guidelines would not satisfy every firm, Deaton acknowledged that such a detailed and well-defined regulatory framework would have allowed crypto-focused firms like Ripple to work towards meeting the requirements within the stipulated timeframe.

To demonstrate Ripple’s commitment to defending itself against the US SEC’s allegations, Attorney Deaton cited the fintech firm’s voluntary resolve to reduce its XRP holdings to fund its legal fees.

Deaton argued that Ripple could have gradually reduced its XRP holdings over a 3-5-year period to align with the predetermined limit had the SEC provided a clear token ownership threshold.

The lawyer mentioned former SEC Chief Jay Clayton and former Director Hinman’s role in the ongoing regulatory uncertainty in the US crypto industry. He highlighted contribution to the US’ lag in providing a comprehensive and clear regulatory pathway for the crypto space.