In an exchange of viewpoints following the ruling by U.S. District Court Judge Analisa in the SEC vs. Ripple lawsuit on 13 July 2023, American lawyer John Deaton challenges Bloomberg journalist Matt Levine’s interpretation of Judge Torres’s ruling concerning XRP’s status.

To recap, the lawsuit initiated by the SEC in December 2020 alleged that Ripple Labs and its executives Bradley Garlinghouse and Christian A. Larsen unlawfully offered and sold securities, contravening Section 5 of the Securities Act of 1933. After a series of hearings and deliberations, Judge Analisa Torres, a district judge at the United States District Court for the Southern District of New York, gave her ruling on July 13, 2023.

On 14 July 2023, in an op-ed for Bloomberg, Levine argued that the digital token XRP’s status as a security could vary depending on the circumstances of its sale. Specifically, Levine proposed that when Ripple sold XRP to institutional investors, it acted as a security, while in contrast, sales to retail investors did not constitute a securities offering.

He wrote:

“Yesterday the federal judge in the case, Judge Analisa Torres of the Southern District of New York, issued an important and rather strange ruling in the case. Here is her opinion. Basically she ruled that sometimes XRP is a security and sometimes it isn’t. When Ripple sold XRP to institutional investors in over-the-counter trades, with due diligence and investment agreements, that was an “investment contract” and so a securities offering. When Ripple sold XRP to retail investors in on-exchange trades, anonymously and with no disclosure, that was not an “investment contract” and so not a securities offering.“

On 15 July 2023, Deaton vehemently disagreed with Levine’s take in a detailed response on Twitter. Central to Deaton’s counter-argument was the emphasis that Judge Torres’s ruling never indicated that XRP could oscillate between being a security and not being one. Instead, Deaton highlighted that the ruling maintained XRP as a digital token and not an “investment contract.”

As CryptoGlobe reported on 13 July 2023, Judge Torres said in her ruling:

“XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract.“

Here is how Deaton argued that Judge Torres’ ruling was correct:

“In order to be deemed an investment contract transaction, the Howey Test must be satisfied. Hard stop. All Torres did was strictly apply the Howey factors to each type of XRP sale, made by Ripple, that the SEC claimed violated Section 5 of the 1934 Securities Act. The SEC, in its Complaint and summary judgment, listed out 4 types of sales that it claimed satisfied Howey: 1) institutional sales (sales to Hedge funds and Banks that were pursuant to written contracts between these institutional buyers and Ripple); 2) programmatic sales on exchanges by Ripple sold to retail public investors; 3) other distributions of XRP to employees, independent contractors, developers to build on the #XRPL, etc; and 4) individual XRP sales via exchanges by the two Ripple executives. Judge Torres strictly applied the Howey test to those 4 types of transactions- she did nothing more, nothing less …

“All Torres did was apply Howey. Matt Levine and others see an inconsistency because in one instance XRP was utilized in an investment contract and in another instance it was not. In 2013 Bitcoin was utilized in an investment contact transaction. That same day, however, people bought Bitcoin and, of course, those purchases of Bitcoin did not involve an investment contract transaction. Any commodity or asset can be marketed, packaged, offered and sold as an investment contract.“