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The U.S. Security Commission (SEC) won a lawsuit against blockchain-based file-sharing and payment network LBRY in New Hampshire District Court on November 7. The incident has garnered a number of comments in relation to the ongoing Ripple incident as well as itself.
LBRY operates a digital content network. The Odysee video sharing website is its most famous app. According to LBRY’s website, the network will use LBRY Credits (LBC) to reward users for performing tasks, referring new users, contributing to projects, and publishing content. LBC can also be mined or purchased.
SEC filed a complaint against LBRY In March 2021, LBRY claimed to be selling unregistered securities. The SEC has sought a permanent injunction against the token sale, recovery of all funds with interest and civil penalties. However, it did not allege fraud or prosecute individuals in the case.
LBRY claimed that LBC was used on the LBRY blockchain from the moment it was launched, rather than for investment purposes.and something function is a product, is not a security. LBRY further argued that fair notice was not given that its assets were subject to the securities laws.
of the court Dismissal The fair notice claim was simple and direct:
“The SEC bases its claims on direct application of time-honored Supreme Court precedents that have been applied by hundreds of federal courts across the country for more than 70 years.”
So LBRY should have been familiar with the Howey test, the standard for defining security. Regarding his LBRY argument regarding the investment use of the token, the court ruled:
The SEC has identified multiple statements by LBRY alleging that potential investors have come to reasonably expect the value of LBC to increase as the company continues to oversee the development of the LBRY network. LBRY minimizes the significance of these statements and points out a number of disclaimers that LBC was not intended to be purchased as an investment, but the SEC is correct.
In other words, the LBC did not pass the Howey test.Again, disclaimer shown to be insufficient protection. However, the court went further in principle, stating that “there is nothing in the case law to suggest that tokens with both consuming and speculative uses cannot be sold as investment contracts.” not only that:
“Even if so [LBRY] Any reasonable investor familiar with the company’s business model would have understood the relationship, even if it had never explicitly publicized its views on the matter.
The case has been closely watched because touching on the perennial question of which cryptocurrencies are securities is important, especially when it comes to litigation.
The SEC v. LBRY lawsuit establishes a precedent that threatens the entire U.S. cryptocurrency industry, LBRY CEO Jeremy Kaufman said in a Cointelegraph written statement. Under the SEC v. LBRY standard, almost all cryptocurrencies, including Ether and Dogecoin, are securities.
Aaron Kaplan, co-CEO of the Prometheum exchange, expressed a similar view. The judge in this case explained that the economic realities surrounding LBC clearly made it a security, he told Cointelegraph. is that almost all tokens other than Bitcoin fit the same economic realities and are therefore also securities.
Related: Judge rules that LBRY video platform tokens are security when brought in by US SEC
Otherwise, the case did not shed light on SEC policy, which emphasizes “facts and circumstances” in its findings, but the industry is keen to identify the triggering factors. While most cryptocurrencies have both investment and use cases, mixed use was unclear in the case of LBRY as we only considered the initial use of the token.
“Many of us looked to that case for guidance on how the court would proceed. [] Philip Moustakis, a former SEC attorney who is now an attorney at Seward & Kissel, told Cointelegraph. Had the investment case been less clear, or had better facts supporting the utility and use cases of the token, the court might have come to a different conclusion, he said.
This is not a mixed-use token test case, Davis Polk partner Zachary Zweihorn told Cointelegraph. I think XRP is more accurate and a better test case.
Zweihorn thought LBRY would be an easy choice. “If a case is too difficult, basically they [the SEC] may not bring. [] They bring cases like this when they have good facts. The SEC can do a lot of research beforehand,” he said.
Attorney John Deaton, who frequently comments on the Ripple case, said: Said About his CryptoLawTV broadcast on Twitter:
They go to New Hampshire and pick a company that has raised hundreds of thousands of dollars.
According to Deaton, the LBRY case is similar to the Ripple case, with the founders in both cases raising money from angel investors and not making initial coin offerings. However, the arguments for the Howey test are different.
Just to be clear, I personally believe Ripple will win the lawsuit.
LBRY didn’t get all the support that Ripple is getting, and their judges didn’t fully understand the ciphers/didn’t take the time to understand them.
I think Judge Torres (for XRP) would make a better decision https://t.co/6nfoxpOo8I
DustyBC Crypto (@TheDustyBC) November 7, 2022
LBRY’s case was heard in US District 1. In other words, LBRY’s decision has no direct impact on the ongoing SEC v. Ripple litigation in District 2. However, Deaton had no doubt that the SEC would mention LBRY’s decision in the Ripple debate. This decision is subject to appeal.
