Attorney John E Deaton Highlights the SEC’s Definition Gap

  • Deaton sheds light on investment contracts in the context of digital assets.
  • John E Deaton: Hinman`s speech had substantial input from top officials within the SEC.

In the ongoing legal dispute between the Securities and Exchange Commission (SEC) and Ripple, prominent attorney John E Deaton has raised compelling arguments against the SEC’s classification of digital assets as securities. Deaton asserts that labeling tokens as securities is intellectually lazy and constitutionally questionable, drawing attention to the evolving nature of digital assets in today’s cyberspace.

According to the attorney, digital assets are merely lines of code existing in the realm of cyberspace. Deaton believes that appellate courts will reject the SEC’s overreach and recognize the distinction between digital assets and securities.

The attorney also sheds light on the legal term “investment contract,” which he claims is widely misunderstood, especially on social media. Deaton emphasizes that the term originated from state law and was adopted by Congress in the Securities Act of 1933. He argues that the Howey Test needs to adequately address the unique characteristics of digital assets.

Deaton further points out that the SEC’s definition of securities does not explicitly include digital assets or software code. He highlights that the only relevant term in the SEC’s cases against Telegram, Kik,, and Ripple is the “investment contract.” He cites the Supreme Court’s Howey case of 1946, where the court defined what constitutes an investment contract.

In another related instance, attorney Deaton expresses his strong disagreement on Twitter with the notion that former SEC Director of Corporation Finance William Hinman’s 2018 speech was merely his opinion. Deaton pointed out that the controversial speech, which played a significant role in shaping the regulatory landscape for cryptocurrencies, had substantial input from top officials within the SEC.

According to Deaton, the speech was not so much an expression of Hinman’s private views as a product of collective deliberation, based on records that revealed 52 separate drafts shared over 63 emails between Hinman and high-ranking SEC officials.

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