With the ongoing legal battle between blockchain firm Ripple and the Securities Exchange Commission (SEC) intensifying, both parties continue to identify and exploit areas of weaknesses in their opponent’s arguments.
Recently, the SEC accused Ripple of selling unregistered securities in the form of XRP tokens. However, in a tweet posted on May 13, Stuart Alderoty, Ripple’s chief legal officer, criticized the SEC’s stance on the “common enterprise” argument, citing the regulator’s unsuccessful assertion in the Supreme Court’s “Howey” case of 1946.
Read Also: Ripple CEO Brad Garlinghouse Predicts New End Date for XRP Lawsuit: Details
The 77-year-old “Howey” Case and its Implications on SEC’s Stance
In the 77-year-old “Howey” case between SEC and W.J. Howey Co, the SEC argued that investment in a “common enterprise” was unnecessary if a “community of interest” had already been established. This argument was, however, not accepted by the Supreme Court. In his tweet, Alderoty pointed out that the SEC is wrong now, just as it was wrong then.
His argument centered on the fact that common interest and common enterprise were dissimilar and it was absolutely wrong for SEC to claim that all XRP holders were involved in a usual enterprise.
According to him, the regulator is misinterpreting the Howey test. He also accused Ripple’s lawyers of overstretching the definition of the “common Enterprise” beyond its original implication, to make it focus more on the word “common,” which is all-encompassing, as against “enterprise,” which is restricted.
In 1946, in its Sup Ct “Howey” brief, the SEC unsuccessfully argued that an investment in a “common enterprise” was unnecessary provided there was a “community of interest”. The SEC was wrong then and it is still wrong now. Common Interest ≠ Common Enterprise. pic.twitter.com/RvH50b6Yjv
— Stuart Alderoty (@s_alderoty) May 13, 2023
Crypto Lawyer Exposes SEC’s Schemes
In response to Alderoty’s tweet, a crypto lawyer, Bill Morgan, suggested that the SEC is banking on an old point that the Supreme Court had earlier rejected. He opined that the SEC is trying to overstretch the Howey test to cover crypto on the grounds that the court intended the test to be flexible.
Bill Morgan stated:
“To put this and Stuart’s tweet in context the starting point is to recognize that the SEC is trying to massively stretch the Howey test to cover crypto on the grounds the test was intended by the Court to be flexible. The SEC does this in relation to crypto by an expansive view of common enterprise that allows it to avoid the word ‘enterprise’ and the need to link it to specific transactions and focusing instead on the adjective common.”
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