SEC settles on security claim in LBRY case; community calls it a big win for crypto
The SEC was hoping to seek affirmation on an ambiguous injunction after scoring a victory during a hearing in November 2022, but judges made it clear that the judgment was only for the direct sale.
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The United States Securities and Exchange Commission (SEC) admitted on record that the sale of LBRY Credits (LBC) tokens in the secondary market doesn’t constitute a security. The settlement came during an appeal hearing in the LBRY vs. SEC case on Jan. 30.
In what many called a victory for the entire crypto industry against the SEC’s overreach regulation by enforcement, Attorney John Deaton settled a major debate during the appeal hearing.
The SEC was awarded summary judgment in its favor during the Nov. 7, 2022 hearing. The judgment categorized each sale of the LBC token during a six-year period as an investment contract without going into detail about the transactions’ specifics. The SEC hoped to advance its effort to gain legitimacy in the secondary market and bring it under its purview as well. The SEC has asked the New Hampshire district court judge to affirm the wide, ambiguous injunction prohibiting its sale.
Deaton, who represented tech journalist Naomi Brockwell as an amicus curiae, sought clarity for LBC secondary market transactions because he found the injunction ambiguous and broad. An amicus curia is an individual or organization that is not a party to a legal case but is permitted to assist a court by offering information, expertise, or insight that has a bearing on the issues in the case.
Deaton cited a paper by commercial contract attorney Lewis Cohen that examined all security lawsuits in the U.S. since the SEC vs. W.J. Howey Co case. No court acknowledged that the underlying asset was security at any point throughout Cohen’s examination of security cases in the United States.
Related: The aftermath of LBRY: Consequences of crypto’s ongoing regulatory process
Deaton persuaded the judge that LBC’s secondary market transactions were not securities. The SEC requested an order that does not make a distinction between LBRY, the company’s management, and users in an effort to avoid providing clarification for LBC. The judge turned to Deaton and told him: “amicus, I’m going to make it clear that my order does not apply to secondary market sales.”
The ruling in the case came as a relief for many in the crypto community, especially XRP holders. Ripple is currently facing a securities lawsuit from the SEC over the sale of XRP tokens. The recent ruling that indicates LBC token sale in the secondary market doesn’t qualify as securities can work in favor of the long-running Ripple lawsuit. A pro-XRP Twitter account said the ruling makes XRP a non-security as well.
Another user suggested the recent ruling could force a settlement in the Ripple lawsuit and said:
“That’s going to kill the sec court case against XRP could this force a settlement?”
Others lauded Deaton for his continuous work to fight against SEC’s overreach, as he has been actively involved in the Ripple lawsuit.