Crypto lawyers John Deaton and Mike Selig took to Twitter to debunk misconceptions about the judge Torres’ decision regarding XRP’s security status.
The legal experts sought to clarify the ruling amid what they deemed to be widespread inaccuracies perpetuated by financial commentators and even some politicians.
John Deaton, the founder of CryptolawUS, expressed his concern about the misinterpretation of the US judge Torres decision, questioning whether it was a result of genuine confusion or intentional misinformation to push false narratives.
He called out politicians like Brad Sherman, accusing them of disregarding the law to gain more control over financial markets.
XRP’s true legal status
Continuing the Twitter thread, Mike Selig, an experienced crypto and financial regulation lawyer, shed light on judge Torres’ ruling. He asserted that XRP itself is not a security, but it can be sold as part of a security.
Selig drew comparisons between XRP, essentially computer code, and commodities like gold or whiskey. He n which can also be involved in investment schemes that trigger securities laws, regardless of whether they are sold to institutions or retail investors.
The crypto lawyer emphasized that for securities laws to apply, there must be evidence of a contract, transaction, or scheme where individuals or institutions invest money with the expectation of profits from others’ efforts.
This essential condition, known as the Howey test, is necessary to bring a crypto asset under the purview of securities laws. Selig made it clear that Judge Torres found no such evidence in specific XRP sales.
Moreover, Selig refuted the notion that a commodity could be classified as a security, stating, “There is no legal precedent supporting the view that a commodity can somehow embody security.”
He also highlighted that other courts have ruled in line with Judge Torres, concluding that crypto assets cannot be considered investment contracts. Therefore, rejecting the idea that crypto assets are inherently investment contracts.
Uncovering regulatory gaps
Selig’s discussion of the Torres Decision brought to light a significant regulatory gap in crypto-asset transactions. Most transactions involving these assets are unlikely to violate securities laws. However, he pointed out that legislative action is required to address this situation adequately.
While legislation can extend an agency’s authority, such as the SEC or CFTC, to establish new regulations for crypto assets, Selig noted that the SEC seems to prefer the narrative that crypto assets become securities when sold to certain investors, filling the current regulatory void. However, he asserted that without proper legislation, the SEC lacks jurisdiction in these matters.