Introduction
The ongoing legal battle between the SEC and Ripple Labs has been closely watched by the crypto community. In a recent development, a United States District Judge has ruled that the secondary sale of LBRY Credits (LBC) does not constitute a security. This ruling could have implications for the SEC‘s case against Ripple, as it could be seen as a precedent that the SEC cannot regulate the secondary trading of cryptocurrencies.
The LBRY case
The SEC filed a lawsuit against LBRY in 2019, alleging that the company had violated securities laws by selling LBC without registering them as securities. LBRY argued that LBC were not securities, as they were not investment contracts. The SEC disagreed, arguing that LBC were securities because they were offered and sold with the expectation of profits to be derived from the efforts of others.
The judge’s ruling
In a ruling issued on July 11, 2023, District Court Judge Paul Barbadoro found that the SEC had failed to prove that LBC were securities. The judge noted that LBC were not offered or sold with the expectation of profits to be derived from the efforts of others. Instead, LBC were simply a medium of exchange for the purchase of content on the LBRY platform.
The implications for Ripple
The ruling in the LBRY case could have implications for the SEC’s case against Ripple. The SEC has alleged that Ripple sold XRP as an unregistered security. However, the ruling in the LBRY case suggests that the SEC may have difficulty proving that XRP are securities.
The SEC’s case against Ripple is based on the Howey test, which defines a security as an investment contract. The Howey test requires that an investment contract have four elements:
1. An investment of money. 2. In a common enterprise. 3. With a reasonable expectation of profits to be derived from the efforts of others. 4. That are not secured by a readily marketable security.
The SEC has argued that XRP meet all four elements of the Howey test. However, the ruling in the LBRY case suggests that the SEC may have difficulty proving that XRP meet the third element of the Howey test. In the LBRY case, the judge found that there was no reasonable expectation of profits to be derived from the efforts of others. This suggests that the SEC may have difficulty proving that there is a reasonable expectation of profits to be derived from the efforts of others in the case of XRP.
Conclusion
The ruling in the LBRY case is a setback for the SEC’s case against Ripple. However, the SEC could still win its case if it can prove that XRP meet the other three elements of the Howey test. The outcome of the SEC’s case against Ripple will have a significant impact on the crypto industry. If the SEC is successful, it could open the door to more regulatory scrutiny of cryptocurrencies. However, if Ripple is successful, it could set a precedent that would make it more difficult for the SEC to regulate cryptocurrencies.
Additional Information
What if XRP is ruled a security?
If the court rules that XRP is a security, it would follow that almost all other crypto tokens are too, making them subject to the SEC’s supervision. This could have a significant impact on the crypto industry, as it would make it more difficult for companies to launch and trade crypto tokens.
What will happen to XRP if they lose the lawsuit?
If Ripple loses the case, the SEC could levy fines on a large number of crypto projects. For Ripple, a loss could negatively impact the project and its executives and open the door to a stricter industry environment.
How can I stay updated on the case?
You can stay updated on the case by following the news on Cointelegraph, The Block, and other crypto news outlets. You can also follow the case on Twitter using the hashtag #XRPCommunity.
Disclaimer
The information in this article is for informational purposes only and is not intended to be legal advice. Please consult with an attorney if you have any questions about the SEC’s case against Ripple or the regulation of cryptocurrencies.
