Crypto Lawyer Lashes SEC Chairman for Considering ETH Security

Today, crypto lawyer John Deaton made mocking statements to the chairman of the US Securities and Exchange Commission (SEC), Gary Gensler. Deaton criticized the chairman, saying Gensler would sue even an orange seller if the seller sought additional investment funds from outside investors for their fruit business.

Specifically, the crypto lawyer argued:

Under Gary Gensler’s application of Howey, if an investor took possession of the oranges from his orange grove and worked out a deal with a local grocer to get more money than all the other Howey investors, the orange would still be a security.

Deaton commented while reacting to a tweet that said the chairman of the US SEC considers the act of staking Ethereum token a security contract.

Even worse, when the Grocer sold the ?to a customer who had no connection to Howey or the Howey investor but only purchased it from the Grocer, the customer would still be holding an unregistered security. Gensler would also sue or tax the Grocer for selling a security – the ?

— John E Deaton (@JohnEDeaton1) January 8, 2023

In September last year, after the Ethereum network migrated to the efficient proof-of-stake (PoS) consensus, the SEC chairman said the native assets of PoS blockchains, which allow holders to earn returns through staking passively, could pass the Howey test.

According to a Wall Street Journal report, the Howey test determines whether an asset qualifies as an investment contract, subjecting it to federal security laws. Under the test, a purchase is considered an investment contract if investors pledge their money to fund an enterprise to make profits from its efforts.

Gensler claimed that PoS cryptocurrencies, including Ethereum, Cardano (ADA), and Solana (SOL), could pass that test. However, crypto lawyer Deaton argued that staking involves third parties independent of the investment promoter.

Over the last two years, the Ripple blockchain has suffered repeated court proceedings after the US regulator charged it for selling XRP, which it considers a security contract.

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