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It is nothing short of the most significant court battle in the crypto world. Ripple, the company behind the cryptocurrency XRP, and the US Securities and Exchange Commission (SEC) are fighting in court over the categorization of the token. Ripple is supported by lawyer John Deaton. This one now has in one document discovered a passage that, in his opinion, significantly influenced the outcome of the negotiation. However, the facts surrounding the mysterious footnote by an alleged SEC employee are opaque.

XRP: security, or not?

The SEC sued Ripple in December 2020, accusing the company of illegally selling its in-house token XRP as an unregistered security for years and that it is still a security today. The court must now clarify whether this allegation is justified and whether XRP is actually a security. The crypto world has been following the case with eagle eyes since day one. Because it is assumed that the process will be used as a precedent for future crypto regulations.

Footnote puzzles

Ripple defends itself by arguing that the SEC has failed to establish a metric that clearly defines how cryptocurrencies are ranked. Any information that indicates the SEC may have considered not classifying XRP as a security can help Ripple. Crypto lawyer Deaton now claims to have made a crucial discovery.

Deaton reported on May 21st on twitter to speak and explained that a brief footnote in a legal document from Ripple, which he only recently noticed, confirms that XRP was actually discussed “between SEC employees before the Hinman speech”.

The relevant passage reads: “There are reasonable grounds to conclude that XRP does not meet all elements of the Howey analysis and is therefore not a ‘securities’ within the meaning of the federal securities laws.” The Howey test is used to assess an asset as a security. However, it is considered controversial, especially with regard to cryptocurrencies. It is questionable whether the test, which is over 50 years old, is applicable to modern assets.

Read this short 🧵 please. When you look at all the other SEC-LIT-EMAILS cited in Ripple’s opposition, they are redacted. The one about there being reasonable grounds to not believe XRP satisfies all the Howey factors is not redacted. https://t.co/qoaCbjk7rg pic.twitter.com/Nc6kfNMJ4c

— John E Deaton (@JohnEDeaton1) May 21, 2023

The Hinman Documents

The Hinman speech is a June 2018 speech in which the former SEC Treasury Director explained that Ether, the native token of the Ethereum blockchain, is not a security. Just days ago, a district court ruled that the SEC could not keep the related “Hinman documents” under wraps. The documents contain records of internal SEC deliberations related to the speech. Judge Analisa Torres denied the SEC’s request to keep the documents confidential.

Authorship unknown

in one Twitter space on May 22, moderated by Fox business journalist Eleanor Terrett, Deaton argued that the passage “clearly states” that XRP was discussed at the agency because “someone at the SEC quoted this person saying, that it is not a security, or she forwarded the email down the email chain.” The authorship of the footnote is unclear. Deaton is now trying to narrow down the possibilities by the way the quote is referred to.

The fact that the text passages are not redacted is an indication that the text “is not a direct quote from a senior SEC official”. In another tweet it then puts it in perspective: “Maybe it’s not a direct quote from an SEC official, but it is an SEC official referring to someone else’s analysis of XRP in the emails with Hinman.” However, at the end of the day these attempts remain just speculation. There could be more information on this matter on June 13th. The Hinman documents are expected to be released that day.