John Deaton Explores the ‘Common Enterprise’ Challenge in SEC vs. Ripple Case

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The US Securities and Exchange Commission has received flak for its classification of tokens into securities. The Regulator has also filed multiple lawsuits against crypto companies for what it contends is selling unregistered securities.

Recently Shark Tank’s Cuban questioned which tokens actively support a “common enterprise” amidst a decline in crypto investments, underscoring the challenge of assessing their compliance with the Howey test without comprehensive data. John Deaton, in response, acknowledged Cuban’s point and delved into the complexities surrounding the “common enterprise” factor in the ongoing SEC vs. Ripple case. 

Shark Tank’s Mark Cuban Questions Token Classification Amidst Decline in Crypto Investments

In a recent tweet, Mark Cuban, a prominent figure from Shark Tank, criticized SEC Chair Gary Gensler’s habit of calling token holders investors, which Cuban believes is incorrect but serves Gensler’s purpose. Cuban raises the question of which tokens are actively enhancing, supporting, and promoting a “common enterprise” since there has been a decline in crypto investments.

He suggests that without data, it is challenging to assess whether these efforts have declined or ended for many tokens, potentially leading to them failing the Howey test. Cuban acknowledges that he lacks specific data on this matter. 

In reply to this John Deaton has noted that it’s an excellent point. He also explains that even if there is a successful appeal on Judge Torres’ ruling in the SEC vs. Ripple case, it wouldn’t guarantee a complete victory for the SEC.

The reason is that Judge Torres did not assess whether a common enterprise existed between Ripple, all other XRP holders, and the XRP ecosystem, including exchanges, particularly concerning programmatic sales through exchanges because the third Howey factor wasn’t satisfied.

The Common Enterprise factor posed a significant challenge for the SEC to demonstrate, and the judge excluded their expert opinion on this matter. 

Additionally, Deaton mentions that they submitted thousands of affidavits from platform users who purchased XRP for non-investment reasons. If the SEC were to win on appeal regarding the third factor, the case would be remanded back to Judge Torres to consider the other two factors, and it’s likely she would find those factors lacking, resulting in a similar practical outcome as the present situation.