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Cryptocurrency News Articles
Crypto Crusader John Deaton Charges into SEC Battle on Behalf of Cryptocurrency Industry
Apr 27, 2024 at 05:37 am
Republican Massachusetts Senate candidate John Deaton has filed an amicus brief in support of Coinbase, the largest crypto exchange in the US, in its legal battle against the SEC over whether cryptocurrencies should be classified as securities. Deaton, a crypto enthusiast and lawyer, is intervening on behalf of thousands of Coinbase users who seek to protect their interests. He argues that the SEC's inconsistent views on how tokens should be regulated raise concerns and that the issue of applying the Howey Test to digital assets should be resolved by a higher court.
Crypto Champion John Deaton Wages Legal Battle Against SEC on Behalf of Cryptocurrency Industry
Amidst the whirlwind of his campaign for Massachusetts Senate, John Deaton, a staunch crypto advocate and lawyer-turned-political candidate, has taken up arms against the Securities and Exchange Commission (SEC) on behalf of the beleaguered cryptocurrency industry.
In a bold move, Deaton has filed an amicus brief in the Southern District of New York in support of Coinbase, the United States' largest cryptocurrency exchange, in its ongoing legal battle with the SEC. This intervention represents the voices of 4,701 Coinbase users, developers, and crypto investors who demand their concerns to be heard in court.
"SEC Chairman Gary Gensler and his agency have shown a disregard for protecting small investors, serving only their political masters," Deaton told FOX Business. "While the SEC wields vast resources at taxpayers' expense, and Coinbase is a formidable company with top-tier legal counsel, consumers deserve an advocate who will amplify their voices."
Coinbase and the SEC have declined to comment on the matter.
The SEC's lawsuit against Coinbase, filed in June 2022, alleges violations of securities laws by operating as an unregistered broker-dealer and offering unregistered securities in the form of crypto tokens. A Manhattan judge ruled in March 2023 that the SEC has sufficient grounds to proceed with the case.
Coinbase has since filed a motion for an interlocutory appeal, seeking a halt to proceedings while a higher court resolves the fundamental legal question that has ignited a standoff between the SEC and the crypto industry: Does the Howey Test, established in a 1946 Supreme Court ruling, apply to cryptocurrency transactions?
The Howey Test is the benchmark used to determine whether a transaction qualifies as an investment contract and thus a security.
The SEC contends that most cryptocurrencies, except Bitcoin, likely satisfy the Howey Test due to their similarities to traditional securities like stocks and bonds, where investors invest in an entity with the expectation of profit.
However, the crypto industry argues that the SEC is attempting to exert its authority over digital assets by forcing them into the existing framework of securities laws, which were established decades ago without consideration for blockchain technology. Many industry experts believe that most digital assets are more akin to commodities and should fall under the jurisdiction of the SEC's sister agency, the Commodity Futures Trading Commission (CFTC).
Deaton's amicus brief challenges the SEC's inconsistent views on how tokens should be regulated. In the Coinbase lawsuit, SEC attorneys argued that Bitcoin, the only asset they exempt from security classification, has earned this status because it lacks an ecosystem or "network."
Deaton counters that Bitcoin arguably has the largest and most established ecosystem, which is precisely why investors choose to invest in it.
"It's absurd to claim that Bitcoin is not a security because it lacks an ecosystem while simultaneously recognizing that other tokens have ecosystems," Deaton asserts.
Deaton's brief, which vehemently criticizes the SEC's "malevolent" approach to crypto regulation, supports Coinbase's motion for an interlocutory appeal. He argues that the lack of clarity on the application of the Howey Test to digital assets necessitates a higher court's guidance.
"If the Howey test is to be interpreted and applied indefinitely to all transactions, an appellate court, potentially even the U.S. Supreme Court, must validate its applicability," he writes.
Deaton further cites statements from Republican SEC Commissioners Hester Peirce and Mark Uyeda, as well as government officials like Congressman Ritchie Torres (D-New York), expressing concerns about the regulatory landscape under Gensler's leadership.
"The prevailing lack of clarity seems to be a strategic effort by the SEC to hinder the digital asset industry," Deaton contends. "At best, their actions are not in line with their mission of protecting investors."
Deaton's involvement in the crypto space is not new. As a Republican candidate running against incumbent Democratic Senator Elizabeth Warren from Massachusetts, he has consistently advocated for the $2 trillion crypto industry and taken on securities regulators.
His legal advocacy for blockchain firm Ripple in its three-year legal battle with the SEC has earned him respect among XRP token holders. He represented XRP investors as an amicus curiae, or "friend of the court," and performed the same role for users of the LBC token in the SEC's lawsuit against decentralized content-sharing platform LBRY.
Deaton's efforts in the Ripple case are widely credited as a contributing factor in Manhattan District Judge Torres' ruling, a watershed moment for the industry, which determined that XRP sales between retail investors on exchanges did not meet the SEC's definition of a securities transaction.
If the ruling withstands appeal, it will establish a legal precedent that the SEC lacks jurisdiction over secondary market transactions between retail investors, such as those conducted on exchanges like Coinbase.
It has also ignited a heated legal debate over the defining characteristics of a security, which is at the core of most SEC lawsuits against the crypto industry.
The Southern District of New York courthouse presents a curious spectacle: three judges holding conflicting views on whether digital asset transactions satisfy the Howey Test. Deaton cites this discord in his brief, arguing for the necessity of an interlocutory appeal to resolve the regulatory conundrum surrounding digital assets once and for all.
Although interlocutory appeals are rarely granted, Deaton's persuasive arguments may sway Judge Failla, who is presiding over the Coinbase case, to rule in favor of Coinbase's request.
As the legal battle unfolds, John Deaton stands as a formidable champion for the cryptocurrency industry. His unwavering advocacy for clarity, fairness, and consumer protection signals a turning point in the relationship between regulators and the burgeoning digital asset ecosystem.
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