SEC was hoping to seek affirmation on an ambiguous injunction after scoring a victory during a hearing in November last year, but judges made it clear that the judgment was only for the direct sale.
The United States Securities and Exchange Commission (SEC) admitted on record that the sale of LBRY 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.
LBRY Hearing: The Stakes for ALL Crypto https://t.co/YPbrBkw0Od
— CryptoLaw (@CryptoLawUS) January 30, 2023
In what many called a victory for the entire crypto industry against SEC’s overreach regulation by enforcement, Attorney John Deaton settled a major debate during the appeal hearing.
SEC was awarded summary judgment in its favor during the Nov. 07 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 to be ambiguous and wide. 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 brought in the U.S. since Howey. No court acknowledged that the underlying asset was security at any point throughout Cohen’s examination of security cases in the U.S.
Related: The aftermath of LBRY: Consequences of crypto’s ongoing regulatory process
Deaton was able to persuade the judge that LBC’s secondary market transactions are 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, and the recent ruling that indicate LBC token sale in the secondary market doesn’t qualify as securities can work in favour of the long-running Ripple lawsuit. A pro XRP twitter account said the ruling makes XRP a non-security as well.
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
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 attorney Deaton for his continuous work to fight against SEC’s overreach as he has been actively involved in the Ripple lawsuit as well.