The second of two profiles honoring RILW’s 2023 Lawyers of the Year. The first profile appeared in the issue of Dec. 4.

---

It sounds like the plot of a movie.

A small-firm personal injury lawyer with expertise in asbestos and mesothelioma cases takes on the U.S. Securities and Exchange Commission, representing more than 75,000 individuals as amicus in an action brought by the federal agency against a cryptocurrency company.

Fantastical as it may seem, the story was real life for John E. Deaton.

“When I first got involved, I was interviewed on a podcast and they asked me, ‘How long have you been a securities lawyer?’” he recalled. “I answered, ‘About two weeks.’”

It all started when Deaton, who invested in cryptocurrency beginning in 2017 and closely tracked its activity, saw the headlines in December 2020 that the SEC had filed suit against Ripple Labs and two of its executives, alleging that the defendants violated Section 5 of the Securities Act by raising more than $1.3 billion through an unregistered offering of digital asset securities.

According to the SEC, Ripple should have registered and marketed its XRP digital token as a security under the federal securities laws.

“I saw this as massive government overreach and asked myself, am I going to sit on the couch and complain about it or am I going to do something about it?” Deaton said.

He opted to do something about it, filing a writ of mandamus in U.S. District Court in Rhode Island, asking the court to order the SEC to limit the allegations to the company itself and leave individual investors who purchased and sold XRP on the secondary market out of the realm of liability.

When the SEC responded to the motion that the Southern District of New York was the court of exclusive jurisdiction in the case, Deaton took it as an invitation and filed a motion to intervene in the SEC’s action against Ripple as an amicus.

“I asked the judge to name individual XRP holders as defendants so we could be part of the case and be heard,” he said. “Never have thousands of investors come to the court and asked to be sued.”

While the court declined Deaton’s suggestion, it did appoint him as amicus counsel, allowing him to participate and be heard on behalf of the token holders, which eventually numbered north of 75,000 individuals from 143 countries around the world.

“It was quite surreal and obviously something I never could have predicted,” he said.

Deaton recently spoke to Lawyers Weekly’s Correy Stephenson.

***

Q: As a personal injury attorney with no experience in the area of securities, why get involved?

A: The argument that the SEC was making was very dangerous. It was that all tokens ever sold by whoever — even in the secondary market, even purchased by people who didn’t know the company existed or that the underlying asset itself was a security — are a security and therefore the seller could be liable. That is absurd, but who wants to go against the government?

As soon as the action was filed, the digital asset exchanges de-listed XRP, which crashed the market. People were wiped out economically overnight, even if they had no affiliation with the company, just by the announcement. I decided to do something about it.

Q: Tell me about your role as an amicus in the case.

A: All of a sudden I became a securities lawyer in the biggest securities case since 1946. The whole thing went viral, and all of a sudden thousands and thousands of individual holders of this token wanted to join me in this fight against the government. I filed just shy of 4,000 affidavits. My whole focus was that a company can do something wrong, but it doesn’t mean people trading the token thereafter are doing something wrong.

Q: How different was working on this case from your day-to-day practice?

A: My strength is being in front of a jury. Writing appellate-like briefs doesn’t come naturally to me, so it took me a lot of time. I was up a lot of hours at night trying to continue to run my practice at the same time. There was a week where I probably slept about two hours each night because I was trying to meet the deadline and was obsessing over filing a brief on behalf of 75,000 people who are hoping you do a good job, while there are securities lawyers scrutinizing every word. I am proud of the brief I put together, and I’m definitely better at it now than when I started.

Q: In July, U.S. District Court Judge Analisa Torres ruled on cross motions for summary judgment in the case, holding that XRP “is not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the … requirements of an investment contract.” What was your reaction to the judge’s decision?

A: The judge got it right. Whenever there is disruptive technology, the status quo likes to fight it and use regulators like the SEC to help fight it. This decision is a big victory for all cryptocurrency and is already being cited by other companies and in other cases. That is why I am very confident that what I did had a major impact, because the two things I did in the case both found their way into the judge’s ruling: she relied on the affidavits I submitted, and in a footnote agreed with me that the LBRY case [brought by the SEC against another crypto platform] did not apply to secondary sales. Within an hour of her decision, all the U.S. exchanges re-listed XRP and it is trading today.

We’ll see if the SEC appeals the decision. They did try an interlocutory appeal, but the judge denied it. If they do appeal, I’m sure I’ll be there as amicus counsel as well. But I’m really confident that the judge’s written ruling is untouchable. I think this is going to be the law of the land.

Q: Would you take on another securities case after this experience?

A: This topic is important to me, and as long as fraud is not involved, I would consider it. If someone engaged in fraud, that’s a different ballgame, and I’m going to stay away. But if it’s arguing over an asset and whether or not it’s a security, that’s a different thing.

There is no bigger topic in finance today than digital currency and cryptocurrency. The SEC has sued Coinbase, and I already represent about 5,000 Coinbase customers as amicus counsel. If Coinbase’s motion to dismiss is denied, I will apply to be amicus counsel in that case to give a voice to the Coinbase customers.

Q: What surprised you about the case?

A: The most surprising part was that career securities lawyers didn’t see the value in what I was doing. Some made fun of me on Twitter when this started, saying that what I was doing was crazy. I was thinking outside the box, and it worked.

Q: As amicus counsel, how did you get paid?

A: I did it all pro bono. I also spent a considerable amount of my own money. Between me and my one associate, we certainly reached seven figures of billable fees, but victories are not always documented by money. I know it sounds corny, but the gratitude and support of thousands and thousands of people who write you emails and letters that you gave them hope and gave them a voice, that’s a lot of payment. This case rejuvenated my career and revitalized my spirits. It got me back to being the fighter I was.