A letter from December 2020 reveals that renowned American legal scholar Joseph Grundfest advised former SEC commissioner Jay Clayton not to sue Ripple, as it would mean a systemic, international risk that could hurt a significant number of innocent XRP holders.

John E. Deaton, from Crypto Law US, published the letter on a thread on X, where he also talked about the contradictions and unethical practices made by Jay Clayton and other SEC representatives.

Speaking of Grundfest, here is his pre-suit letter to Clayton pleading with Clayton NOT to sue @Ripple alleging XRP was a security while giving ETH a free pass. He warned it would destroy the lives of innocent holders with no connection to Ripple. Remember, Grundfest acted as…

— John E Deaton (@JohnEDeaton1) October 28, 2023

Grundfest, who was also a former SEC commissioner himself, stated that by simply initiating the procedures, all parties and intermediaries would stop transacting with XRP, causing a liquidity crunch affecting the token’s price and ultimately leading to multi-billion dollar losses to innocent third parties.

Further, the letter highlights the importance of XRP as one of the largest cryptocurrencies in the market. By December 16, 2020, XRP had approximately $23.8B in market capitalization, the third-largest coin. Such a lawsuit would “implicate a broad range of policy concerns with significant consequences for the nation’s financial and securities markets,” Grundfest stated.

Moreover, Deaton referred to an interview in which Clayton stated that, even in non-fraud cases, he likes suing a company’s executives as it “changes the dynamics,” in this case, Ripple’s main executives, Brad Garlinhouse and Chris Larsen. This, according to Deaton, is an intimidation tactic that raises the burden on the government and the reason why Grundfest warns against engaging in such practices.

ETHGate?

Talking about SEC policies, Grundfest criticized the agency’s fairness and true intention behind the lawsuit; if XRP and ETH are similar, as the staff articulated, then why hasn’t ETH been treated the same without any enforcement of federal laws?

“The staff has articulated no material distinction between the operation of Ether and of XRP that is relevant to the application of the federal securities laws. Imposing securities law obligations on XRP while leaving Ether untouched raises fundamental fairness questions about the exercise of Commission discretion.”

Grundfest added that if there’s no “material distinction” between ETH and XRP, neither should freely circulate in the market or be subject to the same federal laws. This apparent preference for ETH over XRP is why Deaton calls Grundfest the “first ETH conspiracy theorist.”

When FedNow came to be, Crypto Twitter deduced that the lawsuit was possibly the Fed and SEC working together to push Ripple and XRP away and instead place the payment rail (announced in 2019) as the main instrument for cross-border transactions and liquidity sourcing for institutions.