John E Deaton Challenges SEC's Stance on Digital Assets

The SEC's Classification of Digital Assets

Attorney John E Deaton has mounted a formidable challenge against the Securities and Exchange Commission's (SEC) classification of digital assets as securities. He argues that this categorization is both intellectually lazy and constitutionally questionable, given the dynamic nature of digital assets in modern cyberspace. Deaton contends that these assets, essentially lines of code, do not fit traditional definitions of securities.

Misinterpretation of Investment Contracts

Central to Deaton's argument is the term "investment contract," a concept he asserts is widely misunderstood. Originating from state law, and later incorporated into the Securities Act of 1933, this term is pivotal in distinguishing digital assets from securities. Deaton argues that the Howey Test, traditionally used to identify investment contracts, fails to address the unique characteristics of digital assets.

Legal Precedents and SEC Overreach

Deaton highlights that the SEC's legal actions against companies like Telegram, Kik, LBRY.com, and Ripple hinge on the term "investment contract" without explicitly defining digital assets or software code as securities. He claims that appellate courts are likely to reject the SEC’s broad interpretation, viewing it as an overreach.

The Hinman Speech Controversy

Deaton also questions the classification of former SEC Director William Hinman’s 2018 speech as merely his personal opinion. He reveals it was a product of extensive collaboration among SEC officials, evidenced by numerous drafts and emails. This speech significantly influenced the regulatory framework for cryptocurrencies.

Deaton's insights underscore a crucial gap in the SEC’s definition of securities, advocating for a more nuanced understanding of digital assets. His arguments spotlight the need for legal frameworks that accurately reflect the evolving landscape of digital currencies.