LBRY case: SEC settles on security claim; community hails it as a major victory for crypto

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The sale of LBRY Credits (LBC) tokens in the secondary market does not count as the sale of a security, the United States Securities and Exchange Commission (SEC) has publicly acknowledged. The agreement was reached on January 30 during an appeal hearing in the LBRY v. SEC case.

LBRY Hearing: The Stakes for ALL Crypto https://t.co/YPbrBkw0Od

— CryptoLaw (@CryptoLawUS) January 30, 2023

Attorney John Deaton resolved a significant point of contention at the appeal hearing, which many viewed as a victory for the whole cryptocurrency industry against the SEC’s overreaching regulation via enforcement.

On November 7, 2022, the SEC was given summary judgment in its favor. The verdict, which covered a six-year period, classified each sale of the LBC token as an investment contract without going into specifics about the transactions. The SEC hoped to make progress in its mission to legitimize the secondary market and bring it under its jurisdiction. The SEC has requested the district court judge in New Hampshire to uphold the broad, confusing injunction forbidding its sale.

Deaton sought clarification for LBC secondary market transactions because he thought the injunction was vague and overbroad as an amicus curiae representing tech journalist Naomi Brockwell. An amicus curia is a person or group that is not a party to a lawsuit but is allowed to support a court by providing data, knowledge, or insight that is relevant to the case’s issues.

Deaton highlighted a report written by commercial contract lawyer Lewis Cohen that looked at all security claims brought in the US since the SEC vs. W.J. Howey Co case. Throughout Cohen’s analysis of security cases in the United States, no court admitted that the underlying asset was security at any stage.

The judge was convinced by Deaton that LBC’s secondary market transactions weren’t securities. In an effort to avoid providing explanation for LBC, the SEC requested an order that does not distinguish between LBRY, the company’s management, and users. The judge said, turning to face Deaton:

Amicus, I’m going to make it clear that my order does not apply to secondary market sales.

Many people in the cryptocurrency community, especially holders, were relieved by the decision in the case. The SEC has filed a securities complaint against Ripple for the sale of XRP tokens. The long-running Ripple litigation may benefit from the current decision indicating that the secondary market selling of LBC tokens does not constitute as a security. A pro-XRP Twitter account claimed that the decision also qualifies XRP as a non-security.

If the SEC admitted LBRY isn’t a security then they know for sure that #XRP is definitely not a security 😁

— XRPcryptowolf (@XRPcryptowolf) January 30, 2023

That’s going to destroy the secret court action against XRP, may this force a settlement, another user speculated in response to the recent judgement in the Ripple lawsuit.

Others praised Deaton for his ongoing efforts to combat the SEC’s overreach because he has taken a leading role in the Ripple litigation.

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