XRP/Ripple’s lawsuit quest for victory encountered one major hurdle when a New Hampshire Court ruled that LBRY, a decentralized digital content, and payment network offered its native token LBC as security and that the Fair Notice Defense failed.
The Court found “no reasonable trier of fact could reject the SEC’s contention that LBRY offered LBC as a security, and LBRY does not have a triable defense that it lacked fair notice, the SEC is entitled to judgment. The SEC’s Motion for Summary Judgment is granted.”
In March 2021, SEC filed suit against LBRY for selling the token without first registering with the regulator. The LBRY team did hold tokens for themselves in a “pre-mine,” which were later issued on secondary exchanges to support operations, even though they did not offer tokens to the general public via an Initial Coin Offering [ICO].
The federal judge contended in the summary decision that the tokens encouraged the team to develop the network and told potential investors that the token could be “worth something in the future.”
The judgment took note of Reddit threads where LBRY’s community manager implied that the token has both consumptive and investment uses, the latter of which qualifies it as a security because it fails the Howey Test.
In its defense, the protocol claimed that it was not given fair notice or trial when the SEC sued, a claim quickly rejected by the judge on 7th Nov.
“In pressing this argument, LBRY has abandoned any broad claim that it lacked fair notice of the way in which the Howey test applies to digital tokens in general,” the judgment read.
LBRY Verdict A Temporary Setback For XRP/Ripple?
LBRY conceded defeat but insisted that the team was “not giving up” leaving the window open for future trials.
The ruling has brought serious concerns for crypto firms including Ripple, which is currently embroiled in legal battles over the XRP token.
XRP ardent supporter and lawyer John E. Deaton acknowledged that the LBRY ruling was a 100% victory for SEC. But the ruling in no way diminishes his faith in the Ripple case.
Even if the LBRY verdict is a “momentum killer” that might be exploited by the SEC to battle other cryptocurrency firms, according to attorney Fred Rispoli, “This is still not anywhere close to game over for Ripple”.