John Deaton, the lawyer for XRP holders petitioning to congress, talks to Forkast

Judge rules secondary sale of LBC does not classify as security in SEC vs LBRY appeal

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The judge in a case brought by the U.S. Securities and Exchange Commission (SEC) against decentralized publishing platform LBRY Inc. ruled that the secondary sale of the LBRY Credits cryptocurrency, or LBC, does not qualify as the sale of a security. The ruling came in a Jan. 30 appeal filed by the SEC, reportedly to seek an injunction to prevent secondary sales. 

See related article: A crypto regulatory storm front is coming in 2023. Are we ready for it?

Fast facts

  • The SEC filed a complaint against LBRY in March 2021, alleging it raised US$11 million through sale of the LBC token as an “unregistered security.”  On Nov. 7 last year, the court issued a summary judgment in favor of the SEC and classified the initial sale of LBC tokens as investment contracts.
  • During Monday’s hearing, the SEC asked the judge to clarify the first ruling, looking to prohibit all sales of LBC tokens.
  • The judge said the previous ruling only applied to the direct sale of the token, not to secondary sales, an argument made by attorney John Deaton, who served as an amicus curiae in the case for tech journalist Naomi Brockwell.
  • Deaton cited a paper by attorney Lewis Cohen that examined all the security lawsuits in the U.S. since the creation of the Howey Test. The paper showed that no court acknowledged an underlying asset as a security.
  • According to Deaton’s tweet, the judge “said his order does not apply to secondary market sales and he’s not going to issue the injunction sought by the SEC which arguably included secondary sales.” 
  • Following the news LBC rose 35.9% in the 24 hours to 12:30 a.m. in Hong Kong, to trade at US$0.016. XRP, the token on the network of Ripple Labs that is also being sued by the SEC, rose 0.94% to change hands at US$0.40, according to CoinMarketCap data.

See related article: Ripple Decision Soon?

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