John E. Deaton, a strong supporter of the XRP cryptocurrency, has clearly expressed criticized the United States Securities and Exchange Commission (SEC) for what he calls his “embodiment theory.”
John E. Deaton, a strong supporter of the XRP cryptocurrency, has clearly expressed criticized the United States Securities and Exchange Commission (SEC) for what he calls his “embodiment theory.”
This theory first emerged in the SEC’s response to Deaton’s motion to intervene on behalf of XRP holders in the ongoing legal battle with Ripple.
In his social media post, Deaton highlighted a significant flaw in the SEC’s argument, noting that the agency did not cite any legal precedent or established case law to support this novel theory.
Understanding SEC Embodiment Theory
The embodiment theory proposed by the SEC has become a contentious point in the cryptocurrency community.
As Scott Johnsson, another observer of the SEC’s legal strategies, explained during Binance’s oral arguments, the SEC stated: “The token itself represents the investment contract… the token represents the embodiment of an investment contract.” .
This statement suggests that the SEC views the cryptocurrency token as a direct representation of an investment contract, merging the concept of a token with the legal framework of an investment.
However, this stance appears contradictory to previous SEC statements, causing confusion and debate within the legal and crypto communities.
Deaton’s criticism
Deaton has been an outspoken critic of the SEC’s approach, particularly regarding the lack of historical legal support for incarnation theory.
In a social media post on July 19, Deaton argued that XRP does not represent an interest in Ripple in the same way that a stock certificate might represent an interest in a company.
This lack of precedent, according to Deaton, indicates that the SEC’s theory is not based on established law.
Furthermore, he highlighted the importance of applying existing laws to the facts, as exemplified by Judge Torres’ strict application of the Howey test in the Ripple case.
Deaton’s advice to those unhappy with the current legal framework is to seek legislative changes through Congress.