The United States Securities and Exchange Commission (SEC) currently chaired by Gary Gensler has gained victory in the LBC crypto token lawsuit filed against LBRY, the blockchain-based file-sharing, and payments network that powers decentralized platforms.
LBRY-SEC Lawsuit
In the case which was filed against LBRY in March 2021, the United States securities agency argued that the blockchain firm, LBRY, violated the securities law following the issuance of their native token, LBC.
The US-based crypto startup founded by Jeremy Kauffman has since battled in court with the Gary Gensler-led SEC, trying hard to disapprove the allegations. LBRY argued that the LBC crypto token is not a security and that the SEC did not give it fair notice. Therefore, its sale of LBC was not subject to securities laws.
Using the Howey Test strategy which it always adopts, the SEC tried to prove that LBC is a security and was sold as an unregistered security. In supporting its argument, the SEC noted that LBC investors purchased the tokens with the hope that LBRY would increase the price of the token.
This concept labeled 'expectation of profits based on efforts of others’ is the 2nd prong of the Howey Test and LBRY failed to contest this claim according to a top lawyer, John E. Deaton.
Attorneys representing LBRY also failed to ask the Court to distinguish between the secondary market sales and direct sales of the LBC tokens. To this end, the presiding judge gave the final ruling in favor of the SEC, after more than 15 months of the legal tussle.
A New Hampshire judge on Paul Barbadoro ruled on Monday saying;
“Because 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, the SEC is entitled to judgment. The SEC’s Motion for Summary Judgment is granted, and LBRY’s Motion for Summary Judgment is denied.”
In response LBRY tweeted;
We lost. Sorry, everyone. We're going to lick our wounds for a little bit but we're not giving up. We've got a bright team, tens of millions of pieces of content, hundreds of thousands of creators, and one of the most popular web3 apps in the world. The best is yet to come.
According to LBRY founder, Jeremy Kauffman, the language used by the judge in the final ruling sets an extraordinarily dangerous precedent that makes every cryptocurrency in the United States a security, including Ethereum.
Should Ripple Labs Be Worried?
It is worth noting that the LBRY-SEC case began a few months after the U.S. SEC slapped Ripple, the San Francisco-based crypto solutions company and cross-border payment firm with a similar lawsuit regarding the sales of XRP. XRP is the native token of the XRP Ledger (XRPL) which Ripple adopted and gave several use cases.
Of course, the result of the LBRY case is a huge blow to the crypto industry, especially for firms based in the United States. John Deaton noted that the Judge's decision is a bad one, citing that it would be a complete "death row" for crypto projects if the yardstick used by District Judge Paul Barbadoro was passed as a law.
More so, this outcome has caused quite a stir in the Ripple and XRP camp given that they are currently in a similar court battle with the SEC. However, many attorneys supporting Ripple/XRP believe that a different outcome is possible for Ripple given that the crypto solutions company is handling the case differently.