In a Twitter thread that is rapidly gaining attention, prominent crypto lawyers John Deaton and Mike Selig have shed much-needed light on the often-misinterpreted Torres Decision concerning XRP and security laws. The two legal minds aimed to provide clarity amid what they perceived as a slew of inaccuracies being propagated by many, including financial commentators.
Deaton, the founder of CryptolawUS, expressed his concern about the apparent misinterpretation of the Torres Decision, questioning whether this was due to genuine confusion or a deliberate misstatement to foster false narratives. He cited politicians like Brad Sherman, accusing them of ignoring the law to promote government control over financial markets.
The Truth About XRP
Continuing the thread, Selig, a seasoned crypto and financial regulation lawyer, elucidated Judge Torres’ ruling, stating, “XRP itself is not a security, but it can be sold as part of a security.” He likened XRP, which is essentially computer code, to commodities such as gold or whiskey. These can also be part of investment schemes that bring securities laws into play, regardless of whether they are sold to institutions or retail investors.
Selig underscored that for these laws to be applicable, there must be proof of a contract, transaction, or scheme wherein a person or institution invests money expecting profits derived from others’ efforts. This stipulation, known as the Howey test, is essential to bringing a crypto asset under the purview of securities laws. According to Selig, Judge Torres found no evidence of this with regard to specific sales of XRP.
Challenging Established Legal Views
The crypto lawyer went on to challenge the view that a commodity could represent security. He insisted that Judge Torres’ interpretation of the law did not diverge from established legal precedents.
He stated, “There is no legal precedent supporting the view that a commodity can somehow embody security.”
Selig also noted that other courts have similarly concluded that crypto assets cannot be considered contracts, transactions, or schemes, and therefore cannot be classified as investment contracts. In doing so, they reject the idea of crypto assets inherently being investment contracts.
Identifying Regulatory Gaps
In discussing the Torres Decision, Selig highlighted a glaring regulatory gap in crypto-asset transactions. Most transactions involving these assets aren’t likely to breach securities laws. However, legislative action is required to amend this situation.
While legislation can extend an agency’s authority, like the SEC or CFTC, to establish new regulations for crypto assets, Selig stated that the SEC seems to prefer the narrative that crypto assets become securities when sold to certain investors. This interpretation conveniently covers the existing regulatory void. He asserted, however, that without the proper legislation, the SEC lacks jurisdiction in these matters.
