Ripple vs. SEC Drama Rolls on in California Courtroom

On Wednesday, a California federal court heard arguments in a class-action suit turning partly on whether Ripple can be classified as a security. One of Ripple’s most skilled defenders, lawyer John Deaton, has also been instrumental in Coinbase’s response to the SEC.

The United States District Court for the Central District of California held a hearing Wednesday on the class action case against Ripple Labs, known as Zakinov v. Ripple. During the hearing, oral arguments reportedly addressed the certification of the class of XRP holders suing Ripple.

In an April 25 tweet, Deaton complained that the judge in the hearing would not allow amicus (“friend of the court”) testimony during the oral arguments. But he acknowledged that this is an established court policy, not a decision particular to the hearing.

Ripple and XRP

The California hearing concerned XRP holders who either owned or traded the cryptocurrency. Plaintiff Bradley Sostak has asked to be appointed lead plaintiff in the case. He seeks represent the interests of all XRP holders in the class action. Sostak originally brought the case in 2020, although he owned XRP for just two weeks.

The plaintiffs accuse Ripple of violating securities laws by selling XRP as an unregistered security. Controversially, the hearing also covers secondary and international sales. Moreover, it encompasses jurisdictions where the altcoin has the classification of a “non-security.”

But there is nothing close to unanimity on the merits of the lawsuit. XRP holders also include customers who side with Ripple in its argument against the US financial regulator, the Securities and Exchange Commission (SEC), that XRP is not a security. The lawsuit could drag on for months.

Plaintiff Sostak firmly believes that XRP is a security. But Ripple’s lawyers and some XRP holders question the relevance of the Howey Test, the SEC’s means of classifying what is or is not a security. A Bloomberg story last year outlined Ripple’s argument that it makes no sense to treat tokens as securities in the absence of a contract.

The judge’s ruling on the certification of the class of XRP holders will determine whether the lawsuit can proceed as a class action, potentially involving tens of thousands of XRP holders.

John Deaton Fights on Two Fronts

On Monday, Coinbase asked the SEC for further clarifications in a separate lawsuit. This legal motion urges the SEC to respond to Coinbase’s July 2022 petition regarding the crypto industry’s need for regulatory guidance.

Deaton, a driven crypto attorney and Ripple advocate, has been active on more than on front. Deaton wrote in a recent tweet about the actions he has taken on behalf of the crypto industry. He just filed his second Writ of Mandamus in the Coinbase matter.

The first Writ of Mandamus that Deaton filed was in the context of the ongoing Ripple – SEC legal battle. Deaton became the first person to file a Writ of Mandamus against the SEC in defense of a crypto platform. Deaton’s writ aimed at getting the SEC to amend its complaints against Ripple by limiting the focus to XRP coins sold by the blockchain payments firm. SEC charges against XRP cite its sale as an unregistered security, and the regulators even go so far as to indict secondary sales.

The crypto attorney sees parallels among all the lawsuits. Deaton has argued the SEC cannot keep citing one case to back its claims about the Howey Test. The test, devised in 1946 and of questionable relevance in 2023, is still used to determine whether an asset qualifies as a security.

BeInCrypto has approached Deaton for comment.