Filing in LBRY case shows SEC wants to kill crypto and ripple

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On November 7, 2022, the New Hampshire District Court granted summary judgment in favor of the United States Securities and Exchange Commission (SEC) against blockchain payment network LBRY. It was the agency’s third notable win, following SEC wins over Kik and Telegram as the Ripple case nears trial, also on summary judgment.

Although the court’s opinion did little to break new ground, relying on a factual analysis based on the Howey test, the LBRY ruling continues a trend of courts focusing on specific details when determining whether tokens constitute a contract of investment based on a test that dates back to 1946. Meanwhile, the crypto industry in the United States is still awaiting proper regulation.

The SEC seeks to destroy

In the latest filing, the SEC has now reaffirmed its tough stance against LBRY and the crypto industry as a whole. James K. Filan, former federal prosecutor and defense attorney, referenced the SEC letter in which the agency says “a penalty equal to LBRY’s total pecuniary gain of $22,151,971 is just and reasonable. under the circumstances”.

“The SEC does not want to regulate crypto; he wants to kill him in the United States,” Filan said. As explained by XRP community lawyer and YouTuber Jeremy Hogan, the SEC is seeking an injunction against LBRY for future sales. Hogan added:

[…] and on the next page, [the SEC] argues that the Court cannot rule on future sales of Amici because they are too speculative. I think the judge realizes now that it was never meant to protect ANYBODY.

Bill Morgan, another lawyer for the XRP community, commented on the SEC letter as an avoidable defeat whereby the “judge made a rod for his own back.”

Morgan argues that the judge broadly characterized any sale of LBC over a 6-year period as an investment contract without specifying the transaction. This now makes it difficult for the judge not to rule that future sales are not investment contracts either.

Given that he did not want to comment on whether LBRY’s future sales should be compulsorily recorded because the current record did not explain why future sales should be treated differently, how can he decide that future sales be ordered on the same file.

John E. Deaton, who filed an amicus brief in the LBRY case last week, denounced the SEC for calling the LBC token itself a security:

LBC is a digital asset. Like any asset or commodity, it can be packaged and sold in an unregistered securities offering. This is why Nick Morgan for ICAN and myself for Naomi Brockwell filed the Amicus Memoirs. We must fight this narrative every step of the way.

Implications for Ripple

Ultimately, the same position of the SEC is evident in Ripple’s lawsuit. The objective of the watchdog is to report all transactions of XRP tokens as securities transactions from their inception until the future, also regardless of the primary or secondary market. If Ripple fails to highlight the differences in their case and prove the applicability of the Howey test, the blockchain startup could meet a bad end in the United States.

If Ripple were to lose in district court, the question would be whether the company would go to an appeals court and, if necessary, to the Supreme Court. The same is true for the SEC.

As Deaton recently stated, an appeal decision matters far more by setting a precedent for the entire industry. Ripple’s destiny may therefore be revolutionary for the entire crypto industry to combat excessive SEC.

At press time, the price of XRP remained in its downtrend and was trading at $0.3453.

XRP price, 1-day chart

Featured image from iStock, chart from TradingView.com

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