Crypto startup LBRY violated securities laws by selling its native LBC tokens without registering with the U.S. Securities and Exchange Commission. That is according to New Hampshire Judge Paul Barbadoro. The SEC sued LBRY back in March of last year claiming LBC tokens were securities and that the startup had violated securities laws by selling them without registering with the agency. So what’s next for LBRY and consequently Ripple and the XRPArmy? Stay tuned. This is Money Talk Sundayz midweek edition.
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As I mentioned during the opening, the SEC sued LBRY over their LBC tokens claiming they were being sold without being registered with the agency first. LBRY countered saying their tokens were not securities and that the SEC did not give it fair notice that its sale of LBC was subject to securities laws, thus violating the company’s right to due process.
The judge overseeing the lawsuit, Barbadoro of the District Court for the District of New Hampshire ruled Monday that “no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked fair notice.”
After the ruling LBRY took to Twitter tweeting “We lost. Sorry everyone. We’re going to lick our wounds for a little bit but we’re not giving up.”
LBRY founder Jeremy Kauffman stated, "The SEC vs LBRY case establishes a precedent that threatens the entire US cryptocurrency industry. Under the SEC vs LBRY standard, almost every cryptocurrency, including Ethereum and Doge, are securities. The future of cryptocurrency in the US now rests in with an organization even worse than the SEC: the United States Congress.”
This ruling as we know can have wide ranging implications on the rest of the crypto industry. Notably, Ripple Labs is in a heated contest of their own with the SEC. Ripple Labs and two of its executives, who have been charged with selling $1.3 billion in unregistered securities. Much like LBRY, Ripple Labs’ defense has hinged on its claim that its native token XRP is not a security, and that, by failing to provide clarity on whether XRP was a security, the SEC did not provide fair notice that Ripple Labs’ conduct was unlawful.
As the time for Summary Judgement is approaching fast, the XRPArmy appears to be pretty confident of the lawsuit turning in favour of the company.
According to Andrew Rossow, an attorney and adjunct law professor, the court’s ruling used the Howey Test, a test which helps to define what is and what isn’t a security in the US. Per Rossow, although the test was used, it missed the mark in a key area.
“The Court missed the mark in identifying a distinction that possibly speaks to a further clarification of what a ‘reasonable expectation of profits’ means under Howey, as it applies to projects such as LBRY,” Rossow said.
“That distinction separates what I believe to be LBRY’s recognition that it is a ‘work in progress,’” Rossow added, “and while it does want to see its investors make a return on their investment, that the only way that will happen is if others believe the project to have the utility as the company has presented it.”
This same test was applied in the Ripple lawsuit. Attorney John E Deaton said that the LBRY’s lawyers did not challenge Howey’s 2nd Prong test which required a common enterprise. Meanwhile, in Ripple’s case, the common enterprise was challenged. Further, the expert witness for SEC argued the common enterprise is the entire Ripple ecosystem including
